The Asymmetry Analyses of Inflation’s Impact on RPV in China

This paper first built a theoretical model of inflation’s impact on Relative Price Variability(RPV), and calculated the indexes of RPV,inflation(INF) and unexpected inflation(UINF)across the country, then used panel data to do the empirical analyses and test the asymmetry of inflation’s impact on RPV in China. The research shows that the symbols of parameters are in line with the hypotheses of theoretical model, and this asymmetry does exist, which means that inflation's impact on RPV is bigger in price level rise period than price level fall period obviously. Considering the structural changes, the paper shows that this asymmetry is different in different inflation periods, such as the inflation’s impact on RPV is bigger in the price level’s rising period than price level’s declining period in the high inflation period and low inflation period, and the asymmetry is bigger in low inflation period than high inflation period. However, this asymmetry is reversed in deflation period, which means that the impact of inflation on RPV is bigger in price level’s declining period than price level’s rising period in a not so obvious manner. In addition,the empirical result also shows that economic growth can reduce RPV. It is necessary to stabilize price level to keep economic growth. Therefore,relevant national authorities should consider the asymmetry effects of inflation on RPV in different inflation periods for the Macro-control effect of stabilizing price level in dealing with inflation.