Inflation and Financial Market Volatility: International Experienceand Chinese Practice

Abstract

Inflation and financial market volatility significantly impact economies and investment landscapes worldwide.
Understanding the relationship between these phenomena is crucial for policymakers, investors, and economists. This
paper explores the experiences of countries facing high inflation and financial market volatility while examining China's
practices in managing these challenges. Inflation, a sustained increase in the general price level, erodes purchasing
power, distorts resource allocation, and introduces uncertainty into financial markets. Financial market volatility refers
to rapid and significant fluctuations in asset prices, exchange rates, and market indices, reflecting investor sentiment
and market dynamics. Research shows rising inflation can heighten market volatility through currency depreciation,
aggressive monetary policy responses, and asset price bubbles. Countries like Argentina, Zimbabwe, and Venezuela
have experienced severe economic crises characterized by hyperinflation and financial market disruptions. These cases
highlight the consequences of currency depreciation, asset price bubbles, and the erosion of investor confidence.