BOFIT Discussion Papers, Institute for Economies in Transition, Bank of Finland
No 19/2007:
Modelling inflation in China – a regional perspective
Aaron Mehrotra ()
, Tuomas Peltonen and Alvaro Santos Rivera
Abstract: We model provincial inflation in China during the reform
period. In particular, we are interested in the ability of the hybrid New
Keynesian Phillips Curve (NKPC) to capture the inflation process at the
provincial level. The study highlights differences in inflation formation
and shows that the NKPC provides a reasonable description of the inflation
process only for the coastal provinces. A probit analysis suggests that the
forward-looking inflation component and the output gap are important
inflation drivers in provinces that have advanced most in marketisation of
the economy and have most likely experienced excess demand pressures. These
results have implications for the relative effectiveness of monetary policy
across the Chinese provinces.
Keywords: China; inflation; regional; New Keynesian Philips Curve; GMM; (follow links to similar papers)
JEL-Codes: C22; E31; (follow links to similar papers)
41 pages, August 29, 2007
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