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Output gaps and inflation in Mainland China

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  • GERLACH, Stefan
  • Peng, Wensheng

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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References

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  1. Clark, Peter K., 1989. "Trend reversion in real output and unemployment," Journal of Econometrics, Elsevier, vol. 40(1), pages 15-32, January.
  2. 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.
  3. Chen, Baizhu, 1997. "Long-Run Money Demand and Inflation in China," Journal of Macroeconomics, Elsevier, vol. 19(3), pages 609-617, July.
  4. Hasan, Mohammad S., 1999. "Monetary Growth and Inflation in China: A Reexamination," Journal of Comparative Economics, Elsevier, vol. 27(4), pages 669-685, December.
  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. 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.
  7. Stefan E. Oppers, 1997. "Macroeconomic Cycles in China," IMF Working Papers 97/135, International Monetary Fund.
  8. 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.
  9. 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.
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Citations

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Cited by:
  1. Nagayasu, Jun, 2009. "Regional Inflation in China," MPRA Paper 24722, University Library of Munich, Germany.
  2. 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.
  3. Juuso Kaaresvirta & Aaron Mehrotra, 2009. "Business surveys and inflation forecasting in China," Economic Change and Restructuring, Springer, vol. 42(4), pages 263-271, November.
  4. 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.
  5. 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.
  6. 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.
  7. Chengsi Zhang, 2009. "Structural instability of China inflation dynamics," Frontiers of Economics in China, Springer, vol. 4(1), pages 30-45, March.
  8. 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.
  9. 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.
  10. Tiwari, Aviral Kumar & Oros, Cornel & Albulescu, Claudiu Tiberiu, 2014. "Revisiting the inflation–output gap relationship for France using a wavelet transform approach," Economic Modelling, Elsevier, vol. 37(C), pages 464-475.
  11. Chengsi Zhang & Joel Clovis, 2009. "Modeling China Inflation Persistence," Annals of Economics and Finance, Society for AEF, vol. 10(1), pages 89-110, May.
  12. 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.
  13. Scheibe, Jörg & Vines, David, 2005. "A Phillips Curve for China," CEPR Discussion Papers 4957, C.E.P.R. Discussion Papers.
  14. 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.

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