What Determine ChinaÃ¢â‚¬â„¢s Inflation?

Yiping Huang, Wang Xun and Hua Xiuping

Macroeconomics Working Papers from East Asian Bureau of Economic Research

Abstract: We examine determinants of inflation in China. Analyses of both yearonyear and monthonmonth growth data confirm excess liquidity, output gap, housing prices and stock prices positively affecting inflation. Impulse response analyses indicate that most effects occur during the initial five months and disappear after 10 months. Effects of real interest rates and exchange rates on inflation are relatively weak. Our results suggest that output gap is as important as excess liquidity in explaining 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 critical.

Keywords: China; inflation; excess liquidity (search for similar items in EconPapers)
JEL-codes: E31 E58 G12 R20 (search for similar items in EconPapers)
Date: 2010-01
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Citations: View citations in EconPapers (4)

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