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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. 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.
  2. 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.
  3. Clarida, Richard & Galí, Jordi & Gertler, Mark, 2002. "A Simple Framework for International Monetary Policy Analysis," CEPR Discussion Papers 3355, C.E.P.R. Discussion Papers.
  4. Toshitaka Sekine, 2009. "Another look at global disinflation," BIS Working Papers 283, Bank for International Settlements.
  5. Raphael Auer & Kathrin Degen & Andreas M. Fischer, 2010. "Globalization and inflation in Europe," Globalization and Monetary Policy Institute Working Paper 65, Federal Reserve Bank of Dallas.
  6. 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.
  7. Terence Mills & Geoffrey Wood, 2002. "Wages and prices in the UK," Applied Economics, Taylor & Francis Journals, vol. 34(17), pages 2143-2149.
  8. 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.
  9. 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.
  10. 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.
  11. 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.
  12. Auer, Raphael & Fischer, Andreas M, 2008. "The Effect of Trade with Low-Income Countries on U.S. Industry," CEPR Discussion Papers 6819, C.E.P.R. Discussion Papers.
  13. Luke Willard & Tarhan Feyzioglu, 2006. "Does Inflation in China Affect the United States and Japan?," IMF Working Papers 06/36, International Monetary Fund.
  14. 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).
  15. Yash P. Mehra, 1993. "Unit labor costs and the price level," Economic Quarterly, Federal Reserve Bank of Richmond, issue Fall, pages 35-52.
  16. Ball, Laurence & Mankiw, N Gregory, 1995. "Relative-Price Changes as Aggregate Supply Shocks," The Quarterly Journal of Economics, MIT Press, vol. 110(1), pages 161-93, February.
  17. 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.
  18. 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.
  19. Carolina Osorio & D. Filiz Unsal, 2011. "Inflation Dynamics in Asia; Causes, Changes, and Spillovers From China," IMF Working Papers 11/257, International Monetary Fund.
  20. 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.
  21. 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.
  22. 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.
  23. 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.
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