A Study On Deflation In China’s Production Field

The monetary school,represented by Friedman,considers inflation is always a monetary phenomenon.The rise and fall of the price level is the result of the money supply.By controlling the money supply,it can affect the price level and then achieve the target of stabilizing the price level.Since the international financial crisis in 2008,the world’s major economies,represented by the United States,Japan and the European Union,have adopted a loose monetary policy,but an increase in the money supply didn’t rise the price level.Affected by the international financial crisis,the Chinese domestic CPI continued to remain low,PPI is since March 2012 for 54 consecutive months to maintain monthly negative growth year on year.Defined by the single factor theory,there is deflation in Chinese production.At the same time,by the international financial crisis,China’s domestic enterprises face a worldwide shortage of demand,capacity utilization is low,some industries such as China’s steel,coal,cement,flat glass,and other industries facing a serious excess capacity.In the context of deflation in production sector and low utilization of domestic capacity,it is a realistic basis to study the deflation problem in our production field.In economic theory,capacity utilization just like output gap and unemployment,are indicators of the overall economy to measure the situation,to a certain extent,reflects the aggregate demand and total supply of the relative relationship,and has a theoretical link with price level changes.This paper studies the change of the price level from the perspective of capacity utilization,which has certain theoretical value.This paper is divided into five parts.Firstly,this paper expounds the background and significance of the topic selection,the literature review of the relationship between capacity utilization and inflation,the train of thought and frame of this paper,the research methods and the characteristics and shortcomings of this paper.Secondly,this paper expounds the linkage between price changes in industrial production and industrial capacity utilization from macro and micro aspects,and analyzes the factors that influence the relationship between them,such as foreign trade,technological progress and money supply.Thirdly,it constructs a model of calculating the industrial capacity utilization in each region of our country.Set the regional industrial capacity utilization rate as the core to explain the variables.Set the regional average of the industrial average growth rate,the broad money M2 by the regional industrial capacity utilization rate,the growth rate of real industrial output value of each region and the growth rate of international crude oil price as the control variables.Then establish a dynamic panel model of industrial capacity utilization rate and PPI growth rate.The empirical results show that there is a linkage between the price changes in the production sector and the utilization rate of the industrial capacity.The low level of the capacity utilization rate is an important cause of the deflation in the production areas of our country.Finally,on the basis of the empirical results,this paper puts forward the measures to improve the utilization of production capacity,establish a market-based elimination mechanism,deepen the reform of state-owned enterprises,standardize government behavior,implement more targeted monetary policy and improve the international status of RMB Policy recommendations.The features of this paper is based on the following three aspects:Firstly,this paper constructs a dynamic panel data model of industrial capacity utilization and PPI changes in each region,which is different from most of the existing domestic literature research methods.Secondly,in this paper,the problem of deflation in the field of production in China is studied from the perspective of capacity utilization.In a certain extent,the literature database of deflation in China is added to the study of deflation.It’s helpful to expand the study of the problem of deflation.Thirdly,this paper constructs a cointegration model between capacity utilization and capital stock,and avoids subjective errors of the other methods.The shortcomings of this paper are mainly reflected in the short time span of empirical analysis,inaccurate index selection and neglecting foreign trade factors.