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The Chinese Phillips curve – inflation dynamics in the presence of structural change

Research output: Contribution to journalArticle

Author(s)

Paul Gerard Egan, Anthony J Leddin

School/Research organisations

Abstract

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.
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Details

Original languageEnglish
Pages (from-to)165-184
JournalJournal of Chinese Economic and Business Studies
Volume15
Issue number2
DOIs
Publication statusPublished - 16 May 2017

    Research areas

  • China, Phillips curve, Inflation, Markov switching , Structural breaks, Monetary policy

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  1. Examining monetary policy reaction in the People’s Republic of China – a Markov switching policy index approach

    Egan, P. G. & Leddin, A. J., 13 May 2016, In : Journal of Chinese Economic and Business Studies. 14, 2, p. 165-191 27 p.

    Research output: Contribution to journalArticle

ID: 250016623