Exploring the sources of inflation dynamics: New evidence from China

Shu-Hen Chiang, Chien-Chiang Lee () and Ying Liao

Economic Analysis and Policy, 2021, vol. 70, issue C, 313-332

Abstract: The purpose of this paper is to introduce the idea of shift-share analysis, where local inflation is decomposed into the national factor, structural stickiness (with sectoral and regional aspects), and a localized pricing power effect in order to gain a better understanding of the inflation dynamics. We apply price-level data in China as a dual economy, which has historically been separated into urban and rural areas. The results show that sectoral differences in inflation are the most important factor explaining inflation in China, while local pricing power must be seriously considered in many sectors in rural areas.

Keywords: Inflation; Structural stickiness; Structural VAR; Rural–urban divide; Pricing power (search for similar items in EconPapers)
JEL-codes: C32 E31 O18 P24 (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecanpo:v:70:y:2021:i:c:p:313-332

DOI: 10.1016/j.eap.2021.03.001

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