Test of Nonlinear Adjustment Mechanism of Monetary Policies and Inflation in China

On the basis of a cointegration test of nominal interest rate and inflation,this paper identifies the nonlinear and asymmetric adjustment mechanism of nominal interest rate and inflation by constructing a threshold vector error correction model(TVECM).It shows that there is a threshold effect of nominal interest rate on inflation in TVECM and the adjustment of nominal interest rate in China is asymmetric.But inflation is weakly exogenous to a certain extent in the binary system of nominal interest rate and inflation.Therefore,it is difficult to prevent high inflation by current interest rate policy.We should take other monetary policies as a complement to current interest rate policy,even administrative measures when necessary.