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ID: 131764

Inflation in China: old versus new Phillips Curves / Mazumder, Sandeep

Mazumder, Sandeep	Journal Article
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2014.

Summary/Abstract

Among the few papers that have examined the determinants of inflation dynamics in mainland China, the majority of those that have investigated this matter argue that the traditional Phillips curve does not fit China's data. Some authors, however, conclude that the New Keynesian Phillips Curve does a better job of describing Chinese inflation behaviour in recent decades. This paper conducts an analysis of China's inflation behaviour from the late 1980s onwards by estimating both traditional and new Phillips curves using improved econometric techniques. We find that the New Keynesian Phillips Curve performs poorly in explaining China's inflation behaviour, whereas the traditional 'old' Phillips curve does significantly better.

Key Words

Inflation ; China ; Monetary system ; Chinese Economy ; Economic Model ; Inflation Model ;
Inflation Dynamics ; Philips Curve ; Keynesian Curve ; Inflation Behaviour ; Econometric Technique ; Economic Policy

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ID: 107998

Mix of fiscal and monetary policy rules and inflation dynamics / Guo, Qingwang; Jia, Junxue; Zhang, Yongjie; Zhao, Zhiyun

Guo, Qingwang	Journal Article
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Publication

2011.

Summary/Abstract

The present paper examines the role of the mix of fiscal and monetary policy rules in determining inflation dynamics using fiscal and monetary policy reaction functions and Markov-switching vector autoregression methods based on quarterly data in the period 1992-2007. Our results show that fiscal and monetary policies in China can be adequately described using some simple rules, and that significant regime shifts took place around 1998. Fiscal policy tended to be active and countercyclical in the pre-1998 period, then switched to be passive and more countercyclical, whereas monetary policy was characterized as passive and procyclical in the pre-1998 period, and switched to be active and countercyclical afterwards. The mix of fiscal and monetary policy rules can explain inflation dynamics better than the monetary policy rule alone. Therefore, price stability requires not only appropriate monetary policy but also appropriate fiscal policy.

Key Words

Fiscal Policy Rules ; Generalized Method of Moment ; Inflation Dynamics ; Markov - Switching Vector Autoregressions ; Monetary Policy Rules

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