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Modelling inflation in China - a regional perspective

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  • Mehrotra, Aaron N.
  • Peltonen, Tuomas A.
  • Santos Rivera, Alvaro

Abstract

We model provincial inflation in China during the reform period. In particular, we are interested in the ability of the hybrid New Keynesian Phillips Curve (NKPC) to capture the inflation process at the provincial level. The study highlights differences in inflation formation and shows that the NKPC provides a reasonable description of the inflation process only for the coastal provinces. A probit analysis suggests that the forwardlooking inflation component and the output gap are important inflation drivers in provinces that have advanced most in marketisation of the economy and have most likely experienced excess demand pressures. These results have implications for the relative effectiveness of monetary policy across the Chinese provinces. JEL Classification: E31, C22

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Bibliographic Info

Paper provided by European Central Bank in its series Working Paper Series with number 0829.

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Date of creation: Nov 2007
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Handle: RePEc:ecb:ecbwps:20070829

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Keywords: China; GMM; inflation; New Keynesian Phillips curve; Regional;

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Citations

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Cited by:
  1. J. James Reade & Ulrich Volz, 2011. "From the General to the Specific," Discussion Papers 11-18, Department of Economics, University of Birmingham.
  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. Narayan, Paresh Kumar & Narayan, Seema & Smyth, Russell, 2009. "Understanding the inflation-output nexus for China," China Economic Review, Elsevier, vol. 20(1), pages 82-90, March.
  4. Nagayasu, Jun, 2009. "Regional Inflation in China," MPRA Paper 24722, University Library of Munich, Germany.
  5. 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.

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