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Inflation Dynamics in China

Author

Listed:
  • Ryota Kojima

    (Bank of Japan)

  • Shinya Nakamura

    (Bank of Japan)

  • Shinsuke Ohyama

    (Bank of Japan)

Abstract

This paper comprehensively investigates inflation dynamics in China. First, we estimate a structural vector autoregression to verify the 'consensus view' of inflation dynamics in China. We provide the results of basic empirical analyses on inflation mechanisms in China. In the context of the relationship between the output gap and the conventional Phillips curve, we find that the output gap proxied by electricity consumption per unit of capital is a better measure of inflation pressure than another alternative. Based on our analysis of the relationship between input and output prices, we show that wage growth is a substantial determinant of inflation. The estimation of the long-run equilibrium relationship between money, output and prices clearly indicates that the money gap (i.e., the gap between the actual and long-run equilibrium levels of money) Granger-causes consumer price inflation. Based on these empirical results, we assess current inflation and the outlook for inflation in China and draw policy implications.

Suggested Citation

  • Ryota Kojima & Shinya Nakamura & Shinsuke Ohyama, 2005. "Inflation Dynamics in China," Bank of Japan Working Paper Series 05-E-9, Bank of Japan.
    • Handle: RePEc:boj:bojwps:05-e-9
    as

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    File URL: http://www.boj.or.jp/en/research/wps_rev/wps_2005/data/wp05e09.pdf
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    References listed on IDEAS

    as
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    Cited by:

    1. Marlene Amstad & Ye Huan & Guonan Ma, 2014. "Developing an underlying inflation gauge for China," BIS Working Papers 465, Bank for International Settlements.
    2. Mustafa Çakir & Alain Kabundi, 2017. "Transmission of China's Shocks to the BRIS Countries," South African Journal of Economics, Economic Society of South Africa, vol. 85(3), pages 430-454, September.
    3. Jisheng Yang, 2010. "Expectation, excess liquidity and inflation dynamics in China," Frontiers of Economics in China, Springer;Higher Education Press, vol. 5(3), pages 412-429, September.
    4. Mehrotra, Aaron & Peltonen, Tuomas & Santos Rivera, Alvaro, 2010. "Modelling inflation in China--A regional perspective," China Economic Review, Elsevier, vol. 21(2), pages 237-255, June.
    5. repec:zbw:bofitp:2018_011 is not listed on IDEAS
    6. repec:zbw:bofitp:2007_019 is not listed on IDEAS
    7. Mehrotra, Aaron & Peltonen, Tuomas & Santos Rivera, Alvaro, 2010. "Modelling inflation in China--A regional perspective," China Economic Review, Elsevier, vol. 21(2), pages 237-255, June.
    8. Zhiyong Fan, 2009. "Is China’s inflation pushed by wages? An empirical research based on excess wages," Frontiers of Economics in China, Springer;Higher Education Press, vol. 4(4), pages 572-587, December.
    9. Zhang, Chengsi & Murasawa, Yasutomo, 2012. "Multivariate model-based gap measures and a new Phillips curve for China," China Economic Review, Elsevier, vol. 23(1), pages 60-70.
    10. Min Gong & Wenpu Li, 2010. "Assessing the role of aggregate demand and supply shocks in China’s macroeconomic fluctuation," Frontiers of Economics in China, Springer;Higher Education Press, vol. 5(3), pages 464-488, September.

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