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What Causes China's High Inflation? A Threshold Structural Vector Autoregression Analysis.
- Source :
- China & World Economy; Nov/Dec2013, Vol. 21 Issue 6, p100-120, 21p
- Publication Year :
- 2013
-
Abstract
- China's astonishing economic growth implies a necessity to understand its inflation. The present paper employs threshold nonrecursive structural vector autoregression analysis to explore the asymmetric effects of macro-variables on inflation in low and high inflation regimes. The empirical evidence demonstrates, first, that the reactions of inflation to various shocks are inflation-regime-dependent and asymmetric. Second, monetary policy influences China's high inflation and adjusting the domestic interest rate in China may be an effective way to control inflation in a high inflation regime, but not in a low inflation regime. In a high inflation regime, a high inflation rate may cause the macro-policy authorities to increase the domestic interest rate, in an attempt to stabilize high inflation. Third, contrary to expectations, the world oil price is not a strong cost-push factor in a low inflation regime. Oil price increases may increase inflation in a high inflation regime, but there is no such obvious effect in a low inflation regime. Finally, China's nominal effective exchange rate influences inflation in both low and high inflation regimes. A nominal effective exchange rate appreciation might be effective in controlling domestic inflation in both regimes. [ABSTRACT FROM AUTHOR]
Details
- Language :
- English
- ISSN :
- 16712234
- Volume :
- 21
- Issue :
- 6
- Database :
- Complementary Index
- Journal :
- China & World Economy
- Publication Type :
- Academic Journal
- Accession number :
- 93787122
- Full Text :
- https://doi.org/10.1111/j.1749-124X.2013.12048.x