What determines China's inflation?

Yiping Huang, Xun Wang, Xiuping Hua

Research output: Journal PublicationArticlepeer-review

6 Citations (Scopus)

Abstract

We examine determinants of inflation in China. Analyses of both year-on-year and month-on-month growth data confirm that excess liquidity, output gap, housing prices, and stock prices positively affect inflation. Impulse response analyses indicate that most effects occur during the initial five months and disappear after ten months. Effects of real interest rates and exchange rates on inflation are relatively weak. Our results suggest that the output gap is as important as excess liquidity in explaining the 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 crucial.

Original languageEnglish
Pages (from-to)69-86
Number of pages18
JournalChina Economic Journal
Volume3
Issue number1
DOIs
Publication statusPublished - 2010
Externally publishedYes

Keywords

  • Asset prices
  • China
  • Excess liquidity
  • Inflation
  • Output gap

ASJC Scopus subject areas

  • Cultural Studies
  • Sociology and Political Science
  • Economics, Econometrics and Finance (all)

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