Abstract: This article derives the correlation equation between foreign exchange reserves and inflation based on the Lucas total supply model, and then uses my country’s economic data from the first quarter of 1998 to the fourth quarter of 2015 to focus on the relationship between my country’s foreign exchange reserves and inflation. Time-varying relationships are studied in depth. Research shows that there is a significant positive correlation between my country's inflation rate and foreign exchange reserves. However, in the post-financial crisis period, this influence mechanism will undergo structural changes in the short term. As far as the entire sample period is concerned, the growth of my country's foreign exchange reserves will greatly affect the current inflation level, and about half of the current inflation comes from the contribution of foreign exchange reserves. Therefore, the monetary authority should pay great attention to strengthen the control and management of foreign exchange reserves, and properly deal with the deflationary pressure brought about by the reduction of reserves during the "new normal" period.

Key words:Foreign exchange reserves; Inflation; Time-varying coefficient Lucas aggregate supply model;