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Inflation persistence, inflation expectations, and monetary policy in China

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  • Zhang, Chengsi

Abstract

This paper constructs a quarterly series of GDP deflator inflation for China from 1979 to 2009 and tests for a structural break with an unknown change point in the dynamic inflation process. Empirical results suggest a significant structural change in inflation persistence. Employing a counterfactual simulation method, we show that the structural change is primarily attributed to better conduct of monetary policy and the resultant better anchored inflation expectations. This finding implies that the quiescence of inflation in China over the past decade could well be followed by a return to a high inflation era in the absence of a determined effort by the monetary authorities in managing inflation expectations. Therefore, the use of a preemptive monetary policy to anchor inflationary expectations and to keep inflation moderate is warranted in China.

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Bibliographic Info

Article provided by Elsevier in its journal Economic Modelling.

Volume (Year): 28 (2011)
Issue (Month): 1 ()
Pages: 622-629

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Handle: RePEc:eee:ecmode:v:28:y:2011:i:1:p:622-629

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Web page: http://www.elsevier.com/locate/inca/30411

Related research

Keywords: Inflation; Inflation persistence; Inflation dynamics; Structural change; Monetary policy;

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References

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Citations

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Cited by:
  1. Gerlach, Stefan & Tillmann, Peter, 2012. "Inflation targeting and inflation persistence in Asia–Pacific," Journal of Asian Economics, Elsevier, vol. 23(4), pages 360-373.
  2. Meller, Barbara & Nautz, Dieter, 2012. "Inflation persistence in the Euro area before and after the European Monetary Union," Economic Modelling, Elsevier, vol. 29(4), pages 1170-1176.
  3. Gerlach, Stefan & Tillmann, Peter, 2010. "Inflation Targeting and Inflation Persistence in Asia," CEPR Discussion Papers 8046, C.E.P.R. Discussion Papers.
  4. Yanli LI, Hongfeng PENG & Hongfeng PENG, 2013. "Inflation Persistence in Nine Latin American Countries: Panel SURKSS Test with a Fourier Function," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(3), pages 132-143, October.

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