Global Output Gap and Domestic Inflation in China

  • Zhang Chengsi China Finance 40 Forum; Renmin University of China, School of Finance and China Financial Policy Research Center, Beijing, China
  • Xingchen Ji Renmin University of China, School of Finance, Beijing, China
  • Wensheng Dai Renmin University of China, School of Finance and China Financial Policy Research Center, Beijing, China

Abstract

This paper evaluates whether globalization has led to greater sensitivity of Chinese consumer price inflation to the global output gap. The empirical analysis uses quarterly data over the period 1995-2012. The global output gap is measured by weighted output gap of China’s top eighteen trading partners. Estimating Phillips curve models and vector autoregressive models, we find that global capacity constraints have both explanatory and predictive power for domestic consumer price inflation in China. Therefore, the central bank of China should react to developments in global output gaps.


Key words: Globalization, Inflation, Output gap, China.
JEL: C22, E31, E37, E52, E58.


U radu se ocenjuje da li je globalizacija dovela do povećane osetljivosti inflacije potrošačkih cena u Kini u odnosu na globalni proizvodni jaz. Empirijska analiza koristi kvartalne podatke za period 1995-2012. Globalni proizvodni jaz je meren ponderisanim proizvodnim jazom osamnaest najvećih trgovinskih partnera Kine. Ocenjujući modele Filipsove krive i vektorske autoregresivne modele, uočili smo da globalna ograničenja kapaciteta imaju moć da predvide i objasne inflaciju domaćih potrošačkih cena u Kini. Stoga, centralna banka Kine bi trebalo da reaguje na razvoj globalnog proizvodnog jaza.


Ključne reči: Globalizacija, Inflacija, Proizvodni jaz, Kina.

How to Cite
Chengsi Z., Ji X., & Dai W. (2017). Global Output Gap and Domestic Inflation in China. Panoeconomicus, 64(1), 17-30. doi:10.2298/PAN150402034Z
Section
Original scientific paper