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What Determine China’s Inflation?

  • Huang Yiping

    (China Center for Economic Research)

  • Wang Xun
  • Hua Xiuping

We examine determinants of inflation in China. Analyses of both yearonyear and monthonmonth growth data confirm excess liquidity, output gap, housing prices and stock prices positively affecting inflation. Impulse response analyses indicate that most effects occur during the initial five months and disappear after 10 months. Effects of real interest rates and exchange rates on inflation are relatively weak. Our results suggest that output gap is as important as excess liquidity in explaining inflation trajectory. The central bank should closely monitor asset prices given their spillovers to inflation. Currently liquidity measures are still central for controlling inflation, but further liberalization of interest rates and exchange rates are critical.

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File URL: http://130.56.61.71/node/22770
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Paper provided by East Asian Bureau of Economic Research in its series Macroeconomics Working Papers with number 22770.

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Date of creation: Jan 2010
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Handle: RePEc:eab:macroe:22770
Contact details of provider: Postal: JG Crawford Building #13, Asia Pacific School of Economics and Government, Australian National University, ACT 0200
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