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The real cost channel and the Phillips Curve for China

Author

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  • Nie, He
  • Yao, Jiarui
  • Wang, Haoan

Abstract

Recent evidence indicates that the Phillips Curve (PC) has flattened, as shown by a decline in its slope. Concurrently, significant fluctuations and an upward trend in China’s real interest rates have widened the divergence from nominal interest rates. Motivated by these observations, we estimate the PC incorporating the real cost channel, which captures the effect of real interest rates on firms’ marginal costs. Using macroeconomic data for China, we find that the real cost channel contributes to explaining the flattening of the PC for China. Furthermore, the influence of the real cost channel on the PC has intensified in recent years.

Suggested Citation

  • Nie, He & Yao, Jiarui & Wang, Haoan, 2025. "The real cost channel and the Phillips Curve for China," Economics Letters, Elsevier, vol. 247(C).
    • Handle: RePEc:eee:ecolet:v:247:y:2025:i:c:s016517652400644x
    DOI: 10.1016/j.econlet.2024.112160
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    More about this item

    Keywords

    Real cost channel; Phillips Curve; New Keynesian model; Chinese economy;
    All these keywords.

    JEL classification:

    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination

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