The Chinese Phillips curve – inflation dynamics in the presence of structural change
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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.
Egan , P G & Leddin , A J 2017 , ' The Chinese Phillips curve – inflation dynamics in the presence of structural change ' Journal of Chinese Economic and Business Studies , vol. 15 , no. 2 , pp. 165-184 . https://doi.org/10.1080/14765284.2017.1325597
Journal of Chinese Economic and Business Studies
Copyright © 2017, The Chinese Economic Association – UK This work is made available online in accordance with the publisher’s policies. This is the author created, accepted version manuscript following peer review and may differ slightly from the final published version. The final published version of this work is available at https://doi.org/10.1080/14765284.2017.1325597
DescriptionThe financial support of the Irish Research Council (IRC) and the Paul Tansey Research Scholarship in Economics are greatly appreciated.
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