Journal of Chemical and Pharmaceutical Research (ISSN : 0975-7384)

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Original Articles: 2014 Vol: 6 Issue: 6

Foreign exchange reserves and inflation: Can monetary policy explain the changes?


The 2008 global financial crisis slow down the inflation rate and the investment enthusiasm, however, it doesn’t deny the inherent relation between the foreign exchange reserve and the monetary policy, the growth of foreign exchange reserves has also imposed pressure to expected inflation rate. According to the test results we can get that China's foreign exchange reserves growth will promote consumer price index increase, foreign exchange reserves will influence the monetary policy by increase money supply. So that, the excessive foreign exchange reserves is the reason to CPI increase, also we find that the contribution degree of foreign exchange reserves to CPI is more that 20%,that means the influence of foreign exchange reserves is obvious.

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