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ID: 159022

Global slack and open economy Phillips curves – a province-level view from China / Chen, Changsheng; Girardin, Eric; Mehrotra, Aaron

Girardin, Eric	Journal Article
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Summary/Abstract

The “global slack hypothesis” implies that greater integration of the world economy, i.e. globalisation, should have made inflation more responsive to global than domestic economic slack. Many previous studies have accordingly estimated national inflation equations with measures of global output gaps. We use three and a half decades of subnational data from China's provinces to test the global slack hypothesis. Using tests for non-nested regressions, for many provinces we can reject a Phillips curve with a province-level measure of economic slack against a model with China's national output gap, which is consistent with the hypothesis. We also show that the real exchange rate matters for inflation dynamics in many Chinese provinces, in particular those most open to international trade. In addition to supporting the global slack hypothesis, our results emphasise the importance of cross-border factors for China's inflation developments.

Key Words

Globalisation ; China ; Phillips Curve ; Global Slack ; Province-Level Data

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ID: 110250

Multivariate model-based gap measures and a new Phillips curve / Zhang, Chengsi; Murasawa, Yasutomo

Zhang, Chengsi	Journal Article
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2012.

Summary/Abstract

This paper examines empirically the Phillips curve relationship for the Chinese economy. We use quarterly data that go back to 1978 and employ a multivariate rather than univariate method in the construction of gap measures for inflation, money and output jointly with reliable error bands. Our empirical results show that the inflation gap and the output gap fit a New Phillips curve very well. We also find some structural change in the inflation-output trade-off.

Key Words

Structural Change ; Output Gap ; Phillips Curve ; Bayesian Estimator

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