Purpose
The paper aims to know about energy condition’s impacts on inflation comprehensively.
Design/methodology/approach
This paper constructs China’s energy condition index (ECI) by bringing in three variables (China’s energy price, consumption and production) based on the financial condition index.
Findings
The result of empirical analysis shows that the index can predict China’s inflation well.
Originality/value
China’s ECI can predict China’s inflation well.
On the issue of correlativity between monetary policy and economic growth, this study firstly concludes the study results done by foreign and domestic scholars; then, based on the latest economic data like interest rate, exchange rate, bank credit and asset price, this study constructs China's real Financial Condition Index by using VAR model; further, this study uses spectrum analysis to study the relationship between FCI and economic growth and reaches the conclusion that monetary policy changes in consistent with and goes ahead of economic growth; lastly, this study raised some policy suggestions based on history of China's monetary policy.
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