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From the General to the Specific—Modelling Inflation in China

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  • J. James Reade
  • Ulrich Volz

Abstract

This article uses automatic model selection procedures, based on the general-to-specific approach, to investigate inflation in China. A novelty of this article is the use of a technique called impulse indicator saturation which allows us to uncover instabilities and to specify a very general model and select down to a more specific model that best explains inflation in China. By and large, our findings suggest that China has been able to insulate itself against shocks from the US, although (maybe surprisingly) monetary growth in Europe seems to have an effect. Nonetheless, the main factors impacting Chinese inflation appear to be domestic, namely GDP growth and money growth.

Suggested Citation

  • J. James Reade & Ulrich Volz, 2011. "From the General to the Specific—Modelling Inflation in China," Applied Economics Quarterly (formerly: Konjunkturpolitik), Duncker & Humblot, Berlin, vol. 57(1), pages 27-44.
  • Handle: RePEc:aeq:aeqaeq:v57_y2011_i1_q1_p27-44
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    File URL: http://dx.doi.org/10.3790/aeq.57.1.27
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    Cited by:

    1. Jennifer L. Castle & Jurgen A. Doornik & David F. Hendry & Felix Pretis, 2015. "Detecting Location Shifts during Model Selection by Step-Indicator Saturation," Econometrics, MDPI, Open Access Journal, vol. 3(2), pages 1-25, April.

    More about this item

    Keywords

    Chinese inflation; dollar peg; automatic model selection procedure;

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions

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