ARE PRICES STICKY IN LARGE DEVELOPING ECONOMIES? AN EMPIRICAL COMPARISON OF CHINA AND INDIA

Terence Tai Leung Chong, M. S. Rafiq, Tingting Juni Zhu and Zhang Wu ()
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M. S. Rafiq: Asia & Pacific Department, International Monetary Fund, 700 19th Street, N. W. Washington, DC 20431, USA
Zhang Wu: Department of Economics, The Chinese University of Hong Kong, Sha Tin, Hong Kong

The Singapore Economic Review (SER), 2019, vol. 64, issue 02, 341-363

Abstract: By employing the factor augmented vector autoregression (FAVAR) model, this paper compares the role of macroeconomic and sector-specific factors in price movements for China and India, taking into account the features unique to developing economies. We find that fluctuations in the aggregated prices in China are more persistent than the underlying disaggregated prices. Compared to China, prices in India respond more promptly to macroeconomic and monetary policy shocks. We also show that the urban CPI in China responds more sharply than rural CPI when facing sector-specific shocks, while the opposite is valid for India.

Keywords: Disaggregated prices; persistence; common factors (search for similar items in EconPapers)
Date: 2019
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Working Paper: Are Prices Sticky in Large Developing Economies? An Empirical Comparison of China and India (2013)
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DOI: 10.1142/S0217590816500314

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