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China inflation dynamics: Persistence and policy regimes

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  • Zhang, Chengsi
  • Clovis, Joel

Abstract

Inflation in China has been remarkably stable during the last decade, a dramatic shift from the pattern seen in the prior two decades, and so questions arise as to whether inflation dynamics has also changed, and if so, what has caused the change and what are the policy implications? This paper explores these important questions and finds that the persistence of inflation dynamics in China experienced a significant reduction in the late 1990s. By using counterfactual simulations we show that systematic monetary policy change is the main contribution to the observed structural change. Our result implies that although inflation is less persistent and hence less responsive than it used to be to shocks, monetary authorities must be vigilant in monitoring potential inflation rise and to take preemptive action to anchor inflation expectations against any indication that they may rise in the coming periods.

Suggested Citation

  • Zhang, Chengsi & Clovis, Joel, 2010. "China inflation dynamics: Persistence and policy regimes," Journal of Policy Modeling, Elsevier, vol. 32(3), pages 373-388, May.
  • Handle: RePEc:eee:jpolmo:v:32:y::i:3:p:373-388
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Gerlach, Stefan & Tillmann, Peter, 2010. "Inflation Targeting and Inflation Persistence in Asia," CEPR Discussion Papers 8046, C.E.P.R. Discussion Papers.
    2. repec:spr:qualqt:v:51:y:2017:i:3:d:10.1007_s11135-016-0341-2 is not listed on IDEAS
    3. Gerlach, Stefan & Tillmann, Peter, 2012. "Inflation targeting and inflation persistence in Asia–Pacific," Journal of Asian Economics, Elsevier, vol. 23(4), pages 360-373.
    4. Zhang, Chengsi, 2013. "Money, housing, and inflation in China," Journal of Policy Modeling, Elsevier, vol. 35(1), pages 75-87.
    5. Zhang, Chengsi & Zhou, You, 2016. "The Global Slack Hypothesis: New Evidence from China," International Review of Economics & Finance, Elsevier, vol. 42(C), pages 339-348.
    6. Wimanda, Rizki E. & Turner, Paul M. & Hall, Maximilian J.B., 2011. "Expectations and the inertia of inflation: The case of Indonesia," Journal of Policy Modeling, Elsevier, vol. 33(3), pages 426-438, May.
    7. Eric Girardin & Sandrine Lunven & Guonan Ma, 2014. "Inflation and China's monetary policy reaction function: 2002-2013," BIS Papers chapters,in: Bank for International Settlements (ed.), Globalisation, inflation and monetary policy in Asia and the Pacific, volume 77, pages 159-170 Bank for International Settlements.
    8. repec:voj:journl:v:64:y:2017:i:1:p:17-30 is not listed on IDEAS
    9. Çiçek, Serkan & Akar, Cüneyt, 2013. "The asymmetry of inflation adjustment in Turkey," Economic Modelling, Elsevier, vol. 31(C), pages 104-118.
    10. Zhang, Lingxiang, 2013. "Modeling China's inflation dynamics: An MRSTAR approach," Economic Modelling, Elsevier, vol. 31(C), pages 440-446.
    11. Luis A. Gil-Alana & Andrea Mervar & James E. Payne, 2017. "The stationarity of inflation in Croatia: anti-inflation stabilization program and the change in persistence," Economic Change and Restructuring, Springer, vol. 50(1), pages 45-58, February.
    12. Tianfeng Li & June Wei, 2015. "Multiple Structural Breaks and Inflation Persistence: Evidence from China," Asian Economic Journal, East Asian Economic Association, vol. 29(1), pages 1-20, March.
    13. Marlene Amstad & Ye Huan & Guonan Ma, 2014. "Developing an underlying inflation gauge for China," BIS Working Papers 465, Bank for International Settlements.
    14. Tsong, Ching-Chuan & Lee, Cheng-Feng, 2011. "Asymmetric inflation dynamics: Evidence from quantile regression analysis," Journal of Macroeconomics, Elsevier, vol. 33(4), pages 668-680.
    15. Chengsi Zhang, 2016. "How Has Globalisation Affected Inflation in China?," The World Economy, Wiley Blackwell, vol. 39(2), pages 301-313, February.

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