Abstract: This paper firstly applies the dynamic factor model to get the core rate of inflation and the macro common factors. Then, according respectively to the CPI, the core inflation rate and the sub-item price indices of CPI, it constructs a FAVAR model containing the monetary policy tool and the macro common factors. After that, it employs the impulse response function to study the dynamic characteristics of the impact of monetary policy tools on each variable. The empirical results are as follows: firstly, compared with VAR model, the FAVAR model has a better performance in analyzing the effects of monetary policy; secondly, compared with CPI, the monetary authorities should focus on the core inflation rate. In addition, every type of CPI indices has an impulse response function with its own special feature towards monetary supply. Therefore, in order to make the regulated-prices more effective and targeted, the monetary authorities should pay close attention to the heterogeneity characteristics of the impact of monetary policies on the sub-item price indices of CPI.

Key words: monetary policy; core inflation; sub-item price indices of CPI; FAVAR