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China's role in global inflation dynamics

Sandra Eickmeier () and Markus Kühnlenz

No 07/2013, Discussion Papers from Deutsche Bundesbank

Abstract: We apply a structural dynamic factor model to a large quarterly dataset covering 38 countries between 2002 and 2011 to analyze China's role in global inflation dynamics. We identify Chinese supply and demand shocks and examine their contributions to global price dynamics and the transmission mechanism. Our main findings are: (i) Chinese supply and demand shocks affect prices in other countries significantly. Demand shocks matter slightly more than supply shocks. Producer prices tend to be more strongly affected than consumer prices by Chinese shocks. The overall share of international inflation explained by Chinese shocks is notable (about 5 percent on average over all countries but not more than 13 percent in each region); (ii) Direct channels (via import and export prices) and indirect channels (via greater exposure to foreign competition and commodity prices) seem both to matter; (iii) Differences in trade (overall and with China) and in commodity exposure help explaining crosscountry differences in price responses.

Keywords: global inflation; China; international business cycles; structural dynamic factor model; sign restrictions (search for similar items in EconPapers)
JEL-codes: C3 E31 F41 (search for similar items in EconPapers)
Date: 2013
New Economics Papers: this item is included in nep-cna, nep-mon, nep-opm and nep-tra
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Journal Article: CHINA'S ROLE IN GLOBAL INFLATION DYNAMICS (2018) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:bubdps:072013

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