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Formation Mechanism and Management Guide of Structural Price Rising in China

Author: ZhangMing
Tutor: XieJiaZhi
School: Southwestern University
Course: Rural finance and financial
Keywords: Structural Price Rising Economic Structure Institution Structure Expectation Structure
CLC: F323.7
Type: PhD thesis
Year: 2013
Downloads: 44
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Abstract


Now the increasing trend of structural price rising becomes normalized. In this study, I’ll borrow structural inflation and total inflation theory and use a variety of research tools and methods. Firstly, I’ll study the structural characteristics of the Chinese industrial and agricultural price fluctuations and the China’s macro and micro economic characteristics. Then, in terms of the economic structure, the expected structure and the institutional structure, I’ll try to analyze the formative and sustaining mechanism of structural rising of the Chinese industrial and agricultural prices. Finally, based on the China’s management model of price fluctuation, I’ll draw lessons from Soviet Union and other Transition Economics and explore reasonable direction of managing the price fluctuation in the future.一、RESEARCH CONCLUSION1、China’s industrial and agricultural price structural rising is not consistent with the traditional theory of structural inflation. For China, the price fluctuations are highly coupled with Demand Cycle. As a developing country during the period of economic transition, the price fluctuations are closely connected with the China’s unique institutional factors. n addition, the special characteristics of the market system are contributed to the different expected performance between the industrial and the agricultural sector during the transition’s period, which cannot be interpreted by the traditional theory of structural inflation.2、Urban-Rural dualistic structure is the logical starting point of price structural rising under the contest of demand shocks. Developing countries often choose the industrial sector as a forerunner of technical introduction and imitation, when they try to realize the economic catch-up by use of the favorable condition under economic globalization. As the result, the industrial sector gets the "leapfrog" growth, which causes the huge gap between the two sectors. China, as a fast-growing emerging economy, has a heavy responsibility which is boosting his economy and rising GDP, aiming to approach the level of the developed countries. Throughout the catching-up, China chooses the industrialization development strategy, which keeps sustainable development of dualistic structure, under the advantageous condition of economic globalization. When facing with demand shocks, under the Urban-Rural dualistic structure, the industrial sector can cope easily because of his strong supply capability and sufficient capacity, whereas the contradiction between supply and demand is gradually accumulated to the agricultural sector, whose capacity is insufficient. Finally, the Division into Two Parts gradually comes into being.3、Government’s intervention leads to an obviously price structural rising during the transition process. China is undergoing the transition period from planned economy to market economy. The unique institutional arrangements, during this time, lead to the non-fully market-determined price formation mechanisms. In particular, the distorted system of industrial and agricultural products price has a vast importance to Chinese-style price fluctuations and maintenance. Government’s behavior, such as lowering the price of agricultural products and rising industrial, will not only ease two departments price differentiation, but stimulate the agricultural market huge demand and industrial supply, thereby, resulting in more obviously structural price rise pattern.4、The expected property’s difference reinforces price structural rising. As there are significant differences of expected property between two types of products, industrial prices are oriented towards rational expectations guide and can be adjusted freely, while agricultural prices are oriented towards adaptive expectations and have inertia. When an exogenous shock occurs, agricultural adaptive expectations will result in exciting changes in market supply and demand, while industrial rational expectations will result in a reasonable assessment to adjust the price, thanks to the expected property’s difference. The expected property’s difference contributes greatly to the structural price rising, which accounts for39.1%-62.0%.5、There are both advantages and disadvantages of the price structural rising to macroeconomic. The structural price increase play a major and complex role in macroeconomic, for example, the increased economic volatility, due to the increase, is to the detriment of the consumer by inflationary effects or the welfare loss. For another, the increase will help to adjust the imbalance of Industry-Agriculture and Urban-Rural residents’ income by industrial structure or income distribution effects.二、Policy ImplicationsThe structural price increase play a major role in China’s macroeconomic. In response to the structural price increase, government should create its macroeconomic effect target function, consider its formation mechanism as the breakthrough point, draw on its advantages and avoid disadvantages. Of course, the government must contact China’s basic environmental reality, when he is trying to manage the structural price increase. Based on the reality, the government may propose practicable means and powerful policy tools, give a scientific and rational way for policy guidance and management.1、Investment must be encouraged on the synergic relationship between industry and agriculture, bridge their technological and supply-capacity discrepancy. First, adjust their investment’direction and proportion timely, reducing inefficient industrial investment and rising efficient agricultural; second, finance gives subsidy to agriculture, levies a tax on monopoly Industrial Enterprises and guides investment in agriculture; third, financial market should play a part in transferring and scattering agricultural risk, supporting investment in agriculture.2、Orient agriculture to industrialization, establish industry and agriculture market system, which is also balancing Urban and rural. First, accelerate agricultural production’s scale and chain; second, cultivate farmers into real market players and ensure market competition fair; third, establish warning system of agricultural supply and demand and provide information guidelines timely.3、Orient policy to prevent misconduct and maintain a certain tolerance. First, tolerate the retrospective rising agricultural prices; second, understanding the smooth trend of industrial prices.4、Orient economy to ease the overheated and suppress excessively price structural rising. First, maintain a reasonable growth rate and prevent overheating; second, reduce external shocks and dependence and balance economy between here and abroad; third, strengthen inter-regional coordination and cooperation and promote regional integration.三、Main innovation1、Under Urban-Rural dualistic structure and the impact of demand, propose China’s structural price rising’s formative logic. This paper buildes the microscopic foundation by referring to abroad framework and establish the theoretical framework for the hypothesis of department’s development difference by structured analysis method. The empirical results, by using inter-provincial dynamic panel system GMM, show that domestic and foreign output gap, formed by demand shocks, plays an important role in China’s price adjustment, that the dualistic structure bring about the price structural pressure, which is caused also by demand shocks.2、Integrates Chinese market system features during the transition period into analytical framework. The paper considers the twist of the industrial and agricultural system, under the background of transition, as the basic hypothesis. Under the conditions of commodity market equilibrium, the paper builds the theoretical framework, which some institutional factors affect China’s industrial and agricultural prices structural increase. Then the theoretical framework is tested by using inter-provincial dynamic panel system GMM. The theoretical and empirical analysis reveals that Government’s behavior, such as lowering the price of agricultural products and rising industrial, will not only ease two departments price differentiation, but stimulate the agricultural market huge demand and industrial supply, thereby, resulting in more obviously structural price rise pattern.3、Absorb research findings of the expectations theory and make explaining mechanism more micro-based.Research that how much the expected property’s difference contributes to the structural price rising, by using time-varying parameter model, quantile regression analysis method and decomposition method. The results showed that, during the review period, industrial price is adaptive expectation orientation while agricultural price is rational expectation orientation. For anther, the higher the level of inflation is, the more different the dominant price expectation is. Additionally, the heterogeneity of expectation intensifies the structural price rising.

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CLC: > Economic > Agricultural economy > China 's agricultural economy > Construction and development of agricultural economy > Prices of agricultural products and markets
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