Output Gaps and Inflation in Mainland China

Stefan Gerlach () and Wensheng Peng
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Wensheng Peng: Hong Kong Monetary Authority

No 202005, Working Papers from Hong Kong Institute for Monetary Research

Abstract: We estimate output gaps using three methods for Mainland China on annual data spanning 1982-2003. The estimates are similar and appear to co-move with inflation. Standard Phillips curves, however, do not fit the data well. This may reflect the omission of some important variable(s) such as the effect of price deregulation, trade liberalisation and/or changes in the exchange rate regime. We reestimate the Phillips curves assuming that there is an unobserved variable that follows an AR(2) process. The modified model fits the data much better and accounts for some of the surprising features of the simple Phillips curve estimates.

Keywords: output gap; Phillips curve; China; omitted variab les (search for similar items in EconPapers)
JEL-codes: C22 E30 E40 E53 (search for similar items in EconPapers)
Pages: 23 pages
Date: 2005-11
New Economics Papers: this item is included in nep-cba, nep-cna, nep-mac and nep-mon
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Related works:
Journal Article: Output gaps and inflation in Mainland China (2006)
Working Paper: Output gaps and inflation in Mainland China (2006)
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