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Output gaps and inflation in Mainland China

Author

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  • Stefan Gerlach
  • Wensheng Peng

    (Hong Kong Monetary Authority - Hong Kong Institute for Monetary Research (HKIMR))

Abstract

We estimate output gaps using three methods for Mainland China on annual data spanning 1982 – 2003. The estimates are similar and appear to co-move with inflation. Standards Phillips curves, however, do not fit the data well. This may reflect the omission of some important variable(s) such as the effect of price deregulation, trade liberalisation and/or changes in the exchange rate regime. We reestimate the Phillips curves assuming that there is an unobserved variable that follows an AR(2) process. The modified model fits the data much better and accounts for some of the surprising features of the simple Phillips curve estimates.

Suggested Citation

  • Stefan Gerlach & Wensheng Peng, 2006. "Output gaps and inflation in Mainland China," BIS Working Papers 194, Bank for International Settlements.
    • Handle: RePEc:bis:biswps:194
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    References listed on IDEAS

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    More about this item

    Keywords

    output gap; omitted variables; Phillips curve; China;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
    • E53 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Deposit Insurance

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