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China'S Role In Global Inflation Dynamics

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  • Eickmeier, Sandra
  • Kühnlenz, Markus

Abstract

We apply a structural dynamic factor model to a large quarterly data set covering 38 countries between 2002 and 2011 to analyze China's role in global inflation dynamics. We identify Chinese supply and demand shocks and examine their contributions to global price dynamics and the transmission mechanism. Our main findings are as follows: (i) Chinese supply and demand shocks affect prices in other countries significantly. Demand shocks matter slightly more than supply shocks. Producer prices tend to be more strongly affected than consumer prices by Chinese shocks. The overall share of international inflation explained by Chinese shocks is notable (about 6 percent on the average over all countries but not more than 13 percent in each region). (ii) Direct channels (via import and export prices) and indirect channels (via greater exposure to foreign competition and commodity prices) both matter. (iii) Differences in trade and in commodity exposure help explain cross-country differences in price responses.

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  • Eickmeier, Sandra & Kühnlenz, Markus, 2018. "China'S Role In Global Inflation Dynamics," Macroeconomic Dynamics, Cambridge University Press, vol. 22(2), pages 225-254, March.
  • Handle: RePEc:cup:macdyn:v:22:y:2018:i:02:p:225-254_00
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    Cited by:

    1. Tyers, Rod, 2015. "International effects of China's rise and transition: Neoclassical and Keynesian perspectives," Journal of Asian Economics, Elsevier, vol. 37(C), pages 1-19.
    2. Rod Tyers, 2015. "Financial Integration and China's Global Impact," Economics Discussion / Working Papers 15-02, The University of Western Australia, Department of Economics.
    3. Rod Tyers, 2016. "China and Global Macroeconomic Interdependence," The World Economy, Wiley Blackwell, vol. 39(11), pages 1674-1702, November.
    4. Òscar Jordà & Fernanda Nechio, 2020. "Inflation Globally," Central Banking, Analysis, and Economic Policies Book Series, in: Gonzalo Castex & Jordi Galí & Diego Saravia (ed.),Changing Inflation Dynamics,Evolving Monetary Policy, edition 1, volume 27, chapter 8, pages 269-316, Central Bank of Chile.
    5. Pang, Ke & Siklos, Pierre L., 2016. "Macroeconomic consequences of the real-financial nexus: Imbalances and spillovers between China and the U.S," Journal of International Money and Finance, Elsevier, vol. 65(C), pages 195-212.
    6. Aleksei Kiselev & Aleksandra Zhivaykina, 2019. "The role of global relative price changes in international comovement of inflation," Bank of Russia Working Paper Series wps53, Bank of Russia.
    7. Rod Tyers & Ying Zhang & Tsun Se Cheong, 2013. "China’s Saving and Global Economic Performance," Economics Discussion / Working Papers 13-20, The University of Western Australia, Department of Economics.
    8. Rod Tyers & Yixiao Zhou, 2019. "Financial integration and the global effects of China's growth surge," CAMA Working Papers 2019-09, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    9. Van Robays, Ine & Stracca, Livio, 2020. "How much does aggregate demand travel across the Atlantic?," Working Paper Series 2430, European Central Bank.
    10. Carstensen, K. & Salzmann, L., 2017. "The G7 business cycle in a globalized world," Journal of International Money and Finance, Elsevier, vol. 73(PA), pages 134-161.

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    More about this item

    JEL classification:

    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • C3 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables

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