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The Chinese Phillips curve – inflation dynamics in the presence of structural change


  • Paul G. Egan
  • Anthony J. Leddin


This paper models inflation dynamics in China from 1987 to 2014 using a Phillips curve framework. The Phillips curve is generally estimated under the assumption of linearity and parameter constancy. The existence of structural breaks in China’s inflation dynamics make standard linear models inappropriate tools for analysis however. Our results find that the Chinese Phillips curve is characterised by a non-linear relationship. The inflation/output relationship takes the form of a concave curve. This suggests that changes in the level of output effect inflation in China more strongly in periods when output is operating below its potential but the relationship is weaker when output is operating at or above potential. Based on these findings, the People’s Bank of China (PBC) could consider output cost and policy response on a case-by-case basis depending on the level of output in relation to potential.

Suggested Citation

  • Paul G. Egan & Anthony J. Leddin, 2017. "The Chinese Phillips curve – inflation dynamics in the presence of structural change," Journal of Chinese Economic and Business Studies, Taylor & Francis Journals, vol. 15(2), pages 165-184, April.
  • Handle: RePEc:taf:jocebs:v:15:y:2017:i:2:p:165-184
    DOI: 10.1080/14765284.2017.1325597

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    References listed on IDEAS

    1. Andrew J. Filardo, 1998. "New evidence on the output cost of fighting inflation," Economic Review, Federal Reserve Bank of Kansas City, issue Q III.
    2. Glenn Rudebusch & Lars E.O. Svensson, 1999. "Policy Rules for Inflation Targeting," NBER Chapters,in: Monetary Policy Rules, pages 203-262 National Bureau of Economic Research, Inc.
    3. Olivier Basdevant & David Hargreaves, 2003. "Modelling structural change: the case of New Zealand," Reserve Bank of New Zealand Discussion Paper Series DP2003/03, Reserve Bank of New Zealand.
    4. Scheibe, Jörg & Vines, David, 2005. "A Phillips Curve for China," CEPR Discussion Papers 4957, C.E.P.R. Discussion Papers.
    5. S. E Oppers, 1997. "Macroeconomic Cycles in China," IMF Working Papers 97/135, International Monetary Fund.
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