PERFORMANCE OF CHINA’S CORE INFLATION MEASURES FOR MONETARY POLICY

Yushan Hu and Penglong Zhang

The Singapore Economic Review (SER), 2024, vol. 69, issue 07, 2207-2234

Abstract: In this paper, China’s core inflation is defined as any price changes that are caused by the money supply. This definition is especially relevant to examining monetary policy because the money supply is controllable by China’s central bank. This paper develops a New Keynesian DSGE model with a quantity-based monetary rule that fits real aggregated data from China to analyze core inflation’s key characteristics. Eight different approaches are used to estimate core inflation in China. By constructing VAR models of output growth, money supply growth and core inflation, we estimate the response of core inflation measures to the money supply shock. By matching the response to money supply shocks in both the model and the data, we compare the performance of different core inflation measures for monetary policy in China.

Keywords: Core inflation; monetary policy; monetary shock (search for similar items in EconPapers)
JEL-codes: C10 E31 E37 (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1142/S0217590821500168

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