An Empirical Analysis of the Impact of High Foreign Exchange Reserves on Inflation in China

Abstract

This paper studies the effect from the perspective of theoretical and empirical analysis of foreign exchange reserves on inflation, by establishing VAR model, impulse response function and variance decomposition and other measurement methods to get the answer that the foreign exchange reserve is Grainger causality of inflation, and explain the variance of inflation of about 7% changes in conclusion. Finally, some corresponding recommendations of policy are given according to the empirical results.