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Global Output Gap and Domestic Inflation in China

Chengsi Zhang Author-Email: Zhangcs@ruc.edu.cn and Wensheng Dai ()
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Chengsi Zhang Author-Email: Zhangcs@ruc.edu.cn: China Finance 40 Forum; Renmin University of China, School of Finance and China Financial Policy Research Center, Beijing, China Author-Name: Xingchen Ji Author-Email: jixingchen@ruc.edu.cn
Wensheng Dai: Corresponding author Renmin University of China, School of Finance and China Financial Policy Research Center, Beijing, China

Panoeconomicus, 2017, vol. 64, issue 1, 17-30

Abstract: This paper evaluates whether globalization has led to greater sensitivity of Chinese consumer price inflation to the global output gap. The empirical analysis uses quarterly data over the period 1995-2012. The global output gap is measured by weighted output gap of China’s top eighteen trading partners. Estimating Phillips curve models and vector autoregressive models, we find that global capacity constraints have both explanatory and predictive pow- er for domestic consumer price inflation in China. Therefore, the central bank of China should react to developments in global output gaps.

Keywords: Globalization; Inflation; Output gap; China (search for similar items in EconPapers)
JEL-codes: C22 E31 E37 E52 E58 (search for similar items in EconPapers)
Date: 2017
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