A Study on Inflation Expectation Traps in China
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| Title | A Study on Inflation Expectation Traps in China
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| Author | Huang Zhengxin and Huang Jinbo |
| Organization | Guangdong University of Finance & Economics |
| Email | hzxgs@21cn.com；yugen2001@163.com |
| Key Words | Inflation expectation Traps; Objective utility function; Monetary policy expectation management |
| Abstract | Inflation expectation trap is a social economic phenomenon that is not cognitive, its formation mechanism is the result of the mutual game between the monetary authority and the individuals. This paper confirms the argument above by solving the commitment solution, deception solution, equilibrium solution and trap solution of the central bank’s objective function, and we find the inflation expectation trap by classical Phillips Curve. Empirical analysis shows that there are three inflation expectations trap periods. The public inflation expectations demonstrate learning and adaptive features in short term, but unbiased, effective and less than perfectly rational features in long term. Instability and periodicity of the public inflation expectations is a normal phenomenon but under the control of central bank. The time inconsistency problem of monetary policy exits insignificantly in China. The impulse of extraordinary economic growth from performance-oriented government, as well as the investment growth is likely to be the leading causes of inflation expectation traps. |
| Serial Number | WP752 |
| Time | 2014-11-04 |
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