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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.

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Bibliographic Info

Article provided by Elsevier in its journal China Economic Review.

Volume (Year): 17 (2006)
Issue (Month): 2 ()
Pages: 210-225

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Handle: RePEc:eee:chieco:v:17:y:2006:i:2:p:210-225

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Web page: http://www.elsevier.com/locate/chieco

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Find related papers by JEL classification:

• C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models
• 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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1. Gerlach, Stefan & Yiu, Matthew S., 2004. "Estimating output gaps in Asia: A cross-country study," Journal of the Japanese and International Economies, Elsevier, vol. 18(1), pages 115-136, March.
2. Chow, G.C., 1990. "Capital Formation And Economic Growth In China," Papers 356, Princeton, Department of Economics - Econometric Research Program.
   
   • Chow, Gregory C, 1993. "Capital Formation and Economic Growth in China," The Quarterly Journal of Economics, MIT Press, vol. 108(3), pages 809-42, August.
   • Chow, G.C., 1990. "Capital Formation And Economic Growth In China," Papers 67, Princeton, Woodrow Wilson School - Discussion Paper.
3. Wing Thye Woo, 2003. "The Travails of Current Macroeconomic and Exchange Rate Management in China: The Complications of Switching to a New Growth Engine," Development and Comp Systems 0310001, EconWPA.
4. Mohsin S. Khan & Zuliu Hu, 1996. "Why is China Growing So Fast?," IMF Working Papers 96/75, International Monetary Fund.
   
   • Zuliu F. Hu & Mohsin S. Khan, 1997. "Why Is China Growing So Fast?," IMF Staff Papers, Palgrave Macmillan, vol. 44(1), pages 103-131, March.
5. Borensztein, Eduardo & Ostry, Jonathan D, 1996. "Accounting for China's Growth Performance," American Economic Review, American Economic Association, vol. 86(2), pages 224-28, May.
6. Hasan, Mohammad S., 1999. "Monetary Growth and Inflation in China: A Reexamination," Journal of Comparative Economics, Elsevier, vol. 27(4), pages 669-685, December.
7. Stefan E. Oppers, 1997. "Macroeconomic Cycles in China," IMF Working Papers 97/135, International Monetary Fund.
8. Clark, Peter K., 1989. "Trend reversion in real output and unemployment," Journal of Econometrics, Elsevier, vol. 40(1), pages 15-32, January.
9. Chen, Baizhu, 1997. "Long-Run Money Demand and Inflation in China," Journal of Macroeconomics, Elsevier, vol. 19(3), pages 609-617, July.

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Cited by:

1. Kaaresvirta, Juuso & Mehrotra, Aaron, 2008. "Business surveys and inflation forecasting in China," BOFIT Discussion Papers 22/2008, Bank of Finland, Institute for Economies in Transition.
   
   • Juuso Kaaresvirta & Aaron Mehrotra, 2009. "Business surveys and inflation forecasting in China," Economic Change and Restructuring, Springer, vol. 42(4), pages 263-271, November.
2. Chengsi Zhang, 2009. "Structural instability of China inflation dynamics," Frontiers of Economics in China, Springer, vol. 4(1), pages 30-45, March.
3. Chengsi Zhang & Joel Clovis, 2009. "Modeling China Inflation Persistence," Annals of Economics and Finance, Society for AEF, vol. 10(1), pages 89-110, May.
4. Osman, Mohammad & Louis, Rosmy & Balli, Faruk, 2008. "Which Output Gap Measure Matters for the Arab Gulf Cooperation Council Countries (AGCC): The Overall GDP Output Gap or the Non-Oil Sector Output Gap?," MPRA Paper 11612, University Library of Munich, Germany.
5. Aaron Mehrotra & Tuomas Peltonen & Alvaro Santos Rivera, 2007. "Modelling inflation in China - a regional perspective," Working Paper Series 829, European Central Bank.
   
   • 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.
   • Mehrotra, Aaron & Peltonen, Tuomas & Santos Rivera, Alvaro, 2007. "Modelling inflation in China – a regional perspective," BOFIT Discussion Papers 19/2007, Bank of Finland, Institute for Economies in Transition.
6. Ouyang, Alice Y. & Rajan, Ramkishen S. & Willett, Thomas D., 2010. "China as a reserve sink: The evidence from offset and sterilization coefficients," Journal of International Money and Finance, Elsevier, vol. 29(5), pages 951-972, September.
   
   • Alice Y. Ouyang & Ramkishen S. Rajan & Thomas D. Willett, 2007. "China as a Reserve Sink: The Evidence from Offset and Sterilization Coefficients," Working Papers 102007, Hong Kong Institute for Monetary Research.
7. Nagayasu, Jun, 2009. "Regional Inflation in China," MPRA Paper 24722, University Library of Munich, Germany.
8. 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, vol. 5(3), pages 464-488, September.
9. Matthieu Bussière & Arnaud Mehl, 2008. "China's and India's roles in global trade and finance - twin titans for the new millennium?," Occasional Paper Series 80, European Central Bank.
10. Gerlach-Kristen, Petra, 2009. "Business cycle and inflation synchronisation in Mainland China and Hong Kong," International Review of Economics & Finance, Elsevier, vol. 18(3), pages 404-418, June.
11. Antonin Rusek, 2008. "Inflation Dynamics in New EU Member States: The Czech Case," International Advances in Economic Research, Springer, vol. 14(2), pages 191-204, May.
12. Scheibe, Jörg & Vines, David, 2005. "A Phillips Curve for China," CEPR Discussion Papers 4957, C.E.P.R. Discussion Papers.

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