Time-Varying Effects of Imported Inflation on China’s Economy and Its Monetary Policy Response

Ming Che, Zixiang Zhu and Yujia Li

Emerging Markets Finance and Trade, 2025, vol. 61, issue 14, 4560-4578

Abstract: The pass-through of global inflation to China seems imperfect. This paper examines the macroeconomic effects of import prices on China’s economy and its monetary policy using a TVP-VAR-SV framework. We show that the import price shock exerts stagflation while triggering a tightening monetary policy. However, the relevance of import price shocks for inflation and output has declined substantially since 2010, and monetary policy has been less responsive to import prices. In counterfactual analysis, a tight monetary policy amplifies output loss while mitigating the persistence of inflation. The tight monetary policy response stems partly from increased inflation.

Date: 2025
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DOI: 10.1080/1540496X.2025.2520883

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