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Wage and price dynamics in a large emerging economy: The case of China

  • Carsten A Holz
  • Aaron Mehrotra

This study finds that the growth in labour costs in China is not passed through fully to final prices in China, neither in the tradable goods sector nor in the economy as a whole. This probably reflects the strong pressure on profit margins from a highly competitive environment, especially in manufactured goods. The potential implications of labour cost increases in China for global inflation pressures are also discussed.

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Paper provided by Bank for International Settlements in its series BIS Working Papers with number 409.

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Length: 22 pages
Date of creation: Apr 2013
Date of revision:
Handle: RePEc:bis:biswps:409
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  1. Clarida, Richard & Gali, Jordi & Gertler, Mark, 2002. "A simple framework for international monetary policy analysis," Journal of Monetary Economics, Elsevier, vol. 49(5), pages 879-904, July.
  2. Lu, Zhigang & Song, Shunfeng, 2006. "Rural-urban migration and wage determination: The case of Tianjin, China," China Economic Review, Elsevier, vol. 17(3), pages 337-345.
  3. Raphael Auer & Kathrin Degen & Andreas M. Fischer, 2011. "Low-Wage Import Competition, Inflationary Pressure, and Industry Dynamics in Europe," Working Papers 11.02, Swiss National Bank, Study Center Gerzensee.
  4. Yang, Dennis T. & Chen, Vivian & Monarch, Ryan, 2010. "Rising Wages: Has China Lost Its Global Labor Advantage?," IZA Discussion Papers 5008, Institute for the Study of Labor (IZA).
  5. Sekine, Toshitaka, 2009. "Another look at global disinflation," Journal of the Japanese and International Economies, Elsevier, vol. 23(2), pages 220-239, June.
  6. Osorio, Carolina & Unsal, D. Filiz, 2013. "Inflation dynamics in Asia: Causes, changes, and spillovers from China," Journal of Asian Economics, Elsevier, vol. 24(C), pages 26-40.
  7. Zhang, Chengsi & Murasawa, Yasutomo, 2011. "Output gap measurement and the New Keynesian Phillips curve for China," Economic Modelling, Elsevier, vol. 28(6), pages 2462-2468.
  8. Auer, Raphael & Fischer, Andreas M., 2010. "The effect of low-wage import competition on U.S. inflationary pressure," Journal of Monetary Economics, Elsevier, vol. 57(4), pages 491-503, May.
  9. Nigel Pain & Isabell Koske & Marte Sollie, 2008. "Globalisation and OECD consumer price inflation," OECD Journal: Economic Studies, OECD Publishing, vol. 2008(1), pages 1-32.
  10. Luke Willard & Tarhan Feyzioglu, 2006. "Does Inflation in China Affect the United States and Japan?," IMF Working Papers 06/36, International Monetary Fund.
  11. Brandt, Loren & Zhu, Xiaodong, 2001. "Soft budget constraint and inflation cycles: a positive model of the macro-dynamics in China during transition," Journal of Development Economics, Elsevier, vol. 64(2), pages 437-457, April.
  12. de Sousa, José & Poncet, Sandra, 2011. "How are wages set in Beijing?," Regional Science and Urban Economics, Elsevier, vol. 41(1), pages 9-19, January.
  13. Mehra, Yash P, 1991. "Wage Growth and the Inflation Process: An Empirical Note," American Economic Review, American Economic Association, vol. 81(4), pages 931-37, September.
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  15. Ghali, Khalifa H, 1999. "Wage Growth and the Inflation Process: A Multivariate Cointegration Analysis," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 31(3), pages 417-31, August.
  16. Loren Brandt & Trevor Tombe & Xiadong Zhu, 2012. "Online Appendix to "Factor Market Distortions Across Time, Space, and Sectors in China"," Technical Appendices 11-95, Review of Economic Dynamics.
  17. Holz , Carsten A. & Mehrotra, Aaron, 2014. "Wage and price dynamics in a large emerging economy: The case of China," BOFIT Discussion Papers 3/2014, Bank of Finland, Institute for Economies in Transition.
  18. Loren Brandt & Xiaodong Zhu, 2000. "Redistribution in a Decentralized Economy: Growth and Inflation in China under Reform," Journal of Political Economy, University of Chicago Press, vol. 108(2), pages 422-451, April.
  19. Laurence Ball & N. Gregory Mankiw, 1993. "Relative-price changes as aggregate supply shocks," Working Papers 93-13, Federal Reserve Bank of Philadelphia.
  20. Loren Brandt & Trevor Tombe & Xiaodong Zhu, 2012. "Factor Market Distortions across Time, Space and Sectors in China," Working Papers 262012, Hong Kong Institute for Monetary Research.
  21. Terence Mills & Geoffrey Wood, 2002. "Wages and prices in the UK," Applied Economics, Taylor & Francis Journals, vol. 34(17), pages 2143-2149.
  22. Anna Lipínska & Stephen Millard, 2012. "Tailwinds and Headwinds: How Does Growth in the BRICs Affect Inflation in the G-7?," International Journal of Central Banking, International Journal of Central Banking, vol. 8(1), pages 227-266, March.
  23. Yash P. Mehra, 1993. "Unit labor costs and the price level," Economic Quarterly, Federal Reserve Bank of Richmond, issue Fall, pages 35-52.
  24. Harris, Richard D. F. & Tzavalis, Elias, 1999. "Inference for unit roots in dynamic panels where the time dimension is fixed," Journal of Econometrics, Elsevier, vol. 91(2), pages 201-226, August.
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