Study on the Formation Mechanism and Control Policy of Price Fluctuation in China
|Course||Number of economic|
|Keywords||Price fluctuations Induced factor VAR Control policy|
The problem of price is a very important research area in economic theory.Both the economists and the governments are concerned with this problem . The level of price is not only relates to people′s lives, economic development and social stability,but also very important to the orientation of china’s macro-economy regulation policies. At the present stage,undering the global economic crisis and the economic system reform,more and more uncertainties will apparent.So the prices becometh focus of attention again. Try to draw useful conclusions to make China’s macro-control policies more moderate, stronger and more effective, then the development of economy is stable and rapid.In order to find the main factors which affecting domestic prices and their transmission mechanism, we build VAR model to test whether the factors are origins of price .The text tudies the leading factors′impact by using augmented Dickey-Fuller Test ,Granger cauality tests,Johansen-Juselius tests and impulse respone function to make a systematic analysis of these macroeconomic variables.This paper is divided into five parts as follows: The first part will be introduction of the whole paper and give the purpose of writing the paper,current situation of international research about this problems. The price fluctuation will cause a negative impact on economic development.1. Fluctuations in commodity prices will redistribute the wealth.2. The public will receive the wrong signal and make a error of the judge, eventually lead to a serious imbalance in the proportion of the national economy.3. Price inflation benefits for debtors.4. Taxes will rise.The second part we qualitative analysis Semi-Keynesian theory of inflation and modern quantity theory of money firstly. Keynes did not think that any increase in the quantity of money will lead to inflation, he believed that inflation can not be simply interpreted as a rise in the price level. Many factors affect the price fluctuations, principal amount cost units and employment are the main factors. And wether the increase in the quantity of money has inflationary will depend on whether the economy has reached full employment circumstances.Monetary theory of inflation School believed that the main factor which generats the inflation is the increasing and decreasing the amount of money .Monetarists considered that there are three main reasons lead to too much money.1、Government spending is increasing.2、The government implement the policy of full employment.3、The Central Bank implemented the wrong monetary policy.Then we discusse the causes of inflation: 1、Inflation as a monetary phenomenon.2、Demand-pull inflation.3、Cost-push inflation.4、Structural inflation.5、Imported inflation.We deduce four factors which have effected the price fluctuation of China: Demand、Cost、Monetary and foreign exchange rate.The third part through analysising VAR to build the model which required in this article. We deduce four factors which have effected the price fluctuation of China: Demand、Cost、Monetary and foreign exchange rate. Choosing representative targets in these four factors. Demand: Retail Price Index (RPI)., Fixed assets investment growth .Cost: Producer Price Index. Monetary :M1. Foreign exchange rate: Exchange rate of RMB against the U.S. dollar, The total index value of imported goods.In the fourth part we get these conclusions by using stationary text, Granger cauality tests,Johansen-Juselius tests and impulse respone function to test whether the indicators which we choose indicat the price, and analyze the transmission mechanism that haw these factors affect price level in China. 1、RPI,PPI, M1 and the total index value of imported goods are the Granger causes of CPI,they are all the leading indicators of CPI.2、CPI has a strong impact to itself.3、In the long run,RPI and CPI are the causal relationship between each other.In the short run ,RPI will give a greater impacter to CPI.4、PPI and CPI have a greater impact with each other.5、In the long run,there is a cointegration between M1 and CPI. And there is a significant correlation between them.6、The total value of imported goods price index in China has played a certain role in the formation of the price.7、For maintaining price stability,Monetary policy is more directly and more effectively than fiscal policy.8、When government formulate macroeconomic policy,not only focusing on the supply of money,but also considering the timeliness.The fifth part according to the actual situation and our empirical studies,on the basis of existing policies and measures,we give some tentative macroeconomic policies recommendations to prevent price fluctuations. Now,Global economic growth showed a slowdown clearly,so we must inplement a proactive fiscal policy,play a more important role of market allocation of resources. First of all,choosing the public investments which combinate recent developments and long-term development to support long-term development in China.Then, by adjusting market allocation of resources to promote transformation and upgrading of economic structure. Last but not least, focusing on expanding domestic demand, especially consumer demand. On monetary policy, taking a appropriatly liberal policy orientation. Firstly, comprehensive utilizating monetary instruments,Secondly,make a perfection of the formation mechanism of RMB exchange rate.Thirdly, Speeding up the process of market oriented reform of interest rate. Fourthly, Giving full play to the role of open market operations. The economic situation which we are facing will be more complicated in 2010.So,we must put forward some suggestions to prevent price fluctuations according to the actual situation in China. Try to draw useful conclusions to make China’s macro-control policies more moderate, stronger and more effective,then the develop of economy is stable and rapid.