Abstract Since China has been in the new normal macroeconomic period, CPI remained low positive growth, while PPI held consecutively negative downward trend. There has been a great degree of divergence between CPI and PPI. Monetary policy in regulating prices has been severely constrained, and China’s economic restructuring has been blocked. In this paper, we concentrate on the reasons in monetary policy why the divergence between CPI and PPI was generated by dynamic analysis method. The study finds that at different periods of time, the changes of CPI and PPI response to monetary impact caused the divergence between CPI and PPI, which was the reason why in the new normal period monetary policy could not reduce the scissors differences between the CPI and PPI levels effectively. Therefore, the central bank should strengthen the price-based regulation and the transmission mechanism of monetary policy, clear transmission channels to the real economy. By enhancing operational efficiency and the ability of monetary policy serving the real economy, central bank could reduce the divergence between the CPI and the PPI.
2017, Vol. 34 
