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The simulation and the prediction of the inflation rate in China

Han Lipeng

As inflation rate is one of important macroeconomic variables, it’s one of our government’s responsibilities to manage the inflation. This essay, based on the AS-AD Model, uses linear and non-linear model to simulate the inflation behaviors from the first quarter of 1992 to the second quarter of 2010 in China. The results of the study indicate that the main factors which influence the inflation rate are the money supply and the residents’ inflation expectations. For this reason, taking packages of disinflationary policies, such as controlling money supply, to curb the inflation effectively becomes necessary.