The performance of inflation in China over the past few decades has been remarkable. This paper characterizes the statistical nature of the inflation series in China over the past quarter of a century and presents an ...The performance of inflation in China over the past few decades has been remarkable. This paper characterizes the statistical nature of the inflation series in China over the past quarter of a century and presents an interesting scenario of large decline in inflation passthrough accompanied with low inflation since the end of the 1990s. How should monetary policy in China be conducted under these new economic conditions？ We propose a discrete inflation-targeting framework for monetary policy, which is likely to be suitable for the regime of low inflation and inflation pass-through. The advantages and caveats of adopting such a framework are also discussed.展开更多
This paper uses a stochastic volatility model structural break tests with unknown point, and a counterfactual simulation method to discuss the significant decline in inflation uncertainty in China over 1978-2009. We a...This paper uses a stochastic volatility model structural break tests with unknown point, and a counterfactual simulation method to discuss the significant decline in inflation uncertainty in China over 1978-2009. We attempt to quantify the contributions of better monetary policy and smaller structural shocks （including demand, supply and policy impacts） on the reduced inflation uncertainty. Empirical results in the present paper suggest that improved monetary policy accounts for only a small fraction of the reduction in inflation uncertainty from the pre-1997 period to the post-1997 period in China. The bulk of the significant moderation in inflation uncertainty arises from smaller shocks. This finding indicates that the quiescence of inflation in China over the past decade could well be followed by a return to a more turbulent inflation era. Therefore, the use of preemptive monetary policy to anchor inflationary expectations and keep moderate inflation uncertainty is warranted.展开更多
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 func.tions and Markov-switching vector autoregression meth...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 func.tions and Markov-switching vector autoregression methods based on quarterly data in the period 1992-2007. Our results show that fiseal and monetary policies in China can be adequately described using some simple rules, and that significant regime shifts took plaee around 1998. Fiscal policy tended to be active and countereyclical in the pre-1998 period, then switched to be passive and more eountercyclical, 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 fiseal policy.展开更多
This study examines the relationship between inflation rate and reserve requirement ratio in China. Our findings show that there is a long-term relationship between reserve requirement ratio and inflation rate. In the...This study examines the relationship between inflation rate and reserve requirement ratio in China. Our findings show that there is a long-term relationship between reserve requirement ratio and inflation rate. In the short-run, the central bank adjusts the reserve requirement ratio upwards faster than they adjust them downwards. The asymmetric adjustment reflects the fact the Chinese economy was overheating over the past few years as a result of the stimulus package implemented after the onset of the global financial crisis and inflation was threatening the stability of the society.展开更多
On 23 June 2016,the citizens of the United Kingdom(UK)took part in one of the most iconic votes in modern economic history as they voted in favour of the UK leaving the European Union(EU).This has resulted in great un...On 23 June 2016,the citizens of the United Kingdom(UK)took part in one of the most iconic votes in modern economic history as they voted in favour of the UK leaving the European Union(EU).This has resulted in great uncertainty around the future of the economy of the UK as well as the world economy.There were obvious and immediate effects around the time of the vote,such as the decrease in business and consumer confidence,depreciation in the value of the pound which will ultimately lead to inflation,and there are also many effects which we will only see come to fruition as the Brexit(Britain exiting from the EU)scenario plays out over the coming two-to three-year horizon.This allows us to conduct a scenario analysis of the various methods that the UK may utilise to withdraw from the EU and the effects that these methods will have on the economy of the UK and these effects will come through many channels.Our analysis shows how the Bank of England can use monetary policy to limit the effects of Brexit through trying to achieve its 2%inflation target.展开更多
In the past decade Chinese inflation was not high on average, but it was quite volatile. Back in the 1980s and 1990s, high inflation was a very real problem. What explains the inflationary dynamics in China？ In parti...In the past decade Chinese inflation was not high on average, but it was quite volatile. Back in the 1980s and 1990s, high inflation was a very real problem. What explains the inflationary dynamics in China？ In particular, does monetary policy account for the substantial run-ups of inflation, followed by the equally substantial dis-inflation？ In the absence of commitment technologies, the monetary authorities may create surprise inflation to achieve higher growth, while private agents would anticipate that and adjust their decisions accordingly, leading to accelerated inflation without a real impact. Do these types of simple time-inconsistency models of monetary policy explain the dynamic pattern of inflation in China？ I show that the long-run and short-run restrictions imposed by discretionary policy, when the time-inconsistent policymaker has a desire to push output above potential, are largely rejected by the data. The estimates of the inflation bias under discretion when the policymaker is asymmetrically averse to recessions are not statistically significant either. The analysis contributes to the understanding of Chinese monetary policy and its inflationary implications and also points to the need of further investigation of inflationary behavior during the economic transition.展开更多
This paper proposes that inflation in China during the post-reJorm era （1978 onwards） is always a monetary phenomenon. We construct a multivariate dynamic model based on Friedman＇s quantity theory of money and use ...This paper proposes that inflation in China during the post-reJorm era （1978 onwards） is always a monetary phenomenon. We construct a multivariate dynamic model based on Friedman＇s quantity theory of money and use the standard Granger causality test to show that money growth contains significant predictive power for inflation during the underlying period The finding is robust to alternative measures of monetary aggregates and both closed and open economy frameworks. The baseline finding of the paper indicates that quantitative tools remain the most important policy instruments for China to manage its inflation effectively.展开更多
The surge in international capital inflows and the remarkable excess liquidity in China between 1997and 2007are examined in the present paper. It is shown that China＇s improved position in terms of foreign exchange p...The surge in international capital inflows and the remarkable excess liquidity in China between 1997and 2007are examined in the present paper. It is shown that China＇s improved position in terms of foreign exchange purchases, ignited by huge foreign capital inflows, has effectively induced excess liquidity in China. More importantly, by developing an econometric madel for inflation and excess liquidity, the present study demonstrates that excess liquidity has imposed significant pressure on inflation in China over the past 10 years. This finding suggests that excess liquidity in China has not only contributed to the rise in stock prices and the real estate market boom, but also affected the consumer goods market. The potential transmission mechanism of liquidity-driven inflation and policy implications of the findings of this study are discussed.展开更多
This paper argues that the main causes of inflation in China since the early 21st century are changes in the public＇s inflation expectations. The conventional wisdom, the quantity theory of money, may not be adequate...This paper argues that the main causes of inflation in China since the early 21st century are changes in the public＇s inflation expectations. The conventional wisdom, the quantity theory of money, may not be adequate to capture the relationship between price changes and money supply growth, as the economic system evolves and people ＂s income and wealth grow. An examination of China＇s GDP deflator and broad money supply relative to nominal GDP shows that the relationship between the two series is relatively weak. A further examination of China＇s monthly CPI series over the period 2001-2010 reveals that the autoregressive models are a better fit than the moving average models, which suggests that the role of CPl expectations has been significant and important. Because of the importance of inflation expectations in CP1 movement, we believe the Central Bank＇s monetary policy that targets CPI inflation should emphasize the use of policy instruments that have direct and strong communication links with the public. Quantitative measures would have their own use, but their effectiveness would be unlikely to match that of interest rate measures, especially from a short-term perspective.展开更多
This paper evaluates whether globalization has increased the role of global factors in driving inflation in China. Unlike other published studies on the relationship between globalization and inflation, which mostly u...This paper evaluates whether globalization has increased the role of global factors in driving inflation in China. Unlike other published studies on the relationship between globalization and inflation, which mostly use Phillips curve models, this paper uses multivariate dynamic models to examine the dynamic interactions between globalization and inflation in China. Empirical results with quarterly data spanning from 1995 to 2012 show that the global output gap significantly affects the dynamics of inflation in China. In particular, the global ou^mat gap is superior to the domestic output gap in predicting domestic inflation. Impulse response and variance decomposition analyses reinforce this finding. Our results indicate that the central bank of China should take developments in global output into account in its monetary policy-making process.展开更多
文摘The performance of inflation in China over the past few decades has been remarkable. This paper characterizes the statistical nature of the inflation series in China over the past quarter of a century and presents an interesting scenario of large decline in inflation passthrough accompanied with low inflation since the end of the 1990s. How should monetary policy in China be conducted under these new economic conditions？ We propose a discrete inflation-targeting framework for monetary policy, which is likely to be suitable for the regime of low inflation and inflation pass-through. The advantages and caveats of adopting such a framework are also discussed.
基金funded by the Ministry of Education of China through the Program for New Century Excellent Talents in University
文摘This paper uses a stochastic volatility model structural break tests with unknown point, and a counterfactual simulation method to discuss the significant decline in inflation uncertainty in China over 1978-2009. We attempt to quantify the contributions of better monetary policy and smaller structural shocks （including demand, supply and policy impacts） on the reduced inflation uncertainty. Empirical results in the present paper suggest that improved monetary policy accounts for only a small fraction of the reduction in inflation uncertainty from the pre-1997 period to the post-1997 period in China. The bulk of the significant moderation in inflation uncertainty arises from smaller shocks. This finding indicates that the quiescence of inflation in China over the past decade could well be followed by a return to a more turbulent inflation era. Therefore, the use of preemptive monetary policy to anchor inflationary expectations and keep moderate inflation uncertainty is warranted.
基金support of the Program for New Century Excellent Talents in University
文摘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 func.tions and Markov-switching vector autoregression methods based on quarterly data in the period 1992-2007. Our results show that fiseal and monetary policies in China can be adequately described using some simple rules, and that significant regime shifts took plaee around 1998. Fiscal policy tended to be active and countereyclical in the pre-1998 period, then switched to be passive and more eountercyclical, 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 fiseal policy.
文摘This study examines the relationship between inflation rate and reserve requirement ratio in China. Our findings show that there is a long-term relationship between reserve requirement ratio and inflation rate. In the short-run, the central bank adjusts the reserve requirement ratio upwards faster than they adjust them downwards. The asymmetric adjustment reflects the fact the Chinese economy was overheating over the past few years as a result of the stimulus package implemented after the onset of the global financial crisis and inflation was threatening the stability of the society.
基金supported by the Fundamental Research Funds for the Central Universities(China)[Grant number 15XNI001].
文摘On 23 June 2016,the citizens of the United Kingdom(UK)took part in one of the most iconic votes in modern economic history as they voted in favour of the UK leaving the European Union(EU).This has resulted in great uncertainty around the future of the economy of the UK as well as the world economy.There were obvious and immediate effects around the time of the vote,such as the decrease in business and consumer confidence,depreciation in the value of the pound which will ultimately lead to inflation,and there are also many effects which we will only see come to fruition as the Brexit(Britain exiting from the EU)scenario plays out over the coming two-to three-year horizon.This allows us to conduct a scenario analysis of the various methods that the UK may utilise to withdraw from the EU and the effects that these methods will have on the economy of the UK and these effects will come through many channels.Our analysis shows how the Bank of England can use monetary policy to limit the effects of Brexit through trying to achieve its 2%inflation target.
文摘In the past decade Chinese inflation was not high on average, but it was quite volatile. Back in the 1980s and 1990s, high inflation was a very real problem. What explains the inflationary dynamics in China？ In particular, does monetary policy account for the substantial run-ups of inflation, followed by the equally substantial dis-inflation？ In the absence of commitment technologies, the monetary authorities may create surprise inflation to achieve higher growth, while private agents would anticipate that and adjust their decisions accordingly, leading to accelerated inflation without a real impact. Do these types of simple time-inconsistency models of monetary policy explain the dynamic pattern of inflation in China？ I show that the long-run and short-run restrictions imposed by discretionary policy, when the time-inconsistent policymaker has a desire to push output above potential, are largely rejected by the data. The estimates of the inflation bias under discretion when the policymaker is asymmetrically averse to recessions are not statistically significant either. The analysis contributes to the understanding of Chinese monetary policy and its inflationary implications and also points to the need of further investigation of inflationary behavior during the economic transition.
基金suppoted by the Fundamental Research Funds for the Central Universities and the Research Funds of Renmin University of China(Grant No.10XNK014 and Grant No.10XNK113)
文摘This paper proposes that inflation in China during the post-reJorm era （1978 onwards） is always a monetary phenomenon. We construct a multivariate dynamic model based on Friedman＇s quantity theory of money and use the standard Granger causality test to show that money growth contains significant predictive power for inflation during the underlying period The finding is robust to alternative measures of monetary aggregates and both closed and open economy frameworks. The baseline finding of the paper indicates that quantitative tools remain the most important policy instruments for China to manage its inflation effectively.
基金National Social Science Fund (No.08CJY048)the research funding from the"985 Project"of Renmin University of China with Grant No.21353232
文摘The surge in international capital inflows and the remarkable excess liquidity in China between 1997and 2007are examined in the present paper. It is shown that China＇s improved position in terms of foreign exchange purchases, ignited by huge foreign capital inflows, has effectively induced excess liquidity in China. More importantly, by developing an econometric madel for inflation and excess liquidity, the present study demonstrates that excess liquidity has imposed significant pressure on inflation in China over the past 10 years. This finding suggests that excess liquidity in China has not only contributed to the rise in stock prices and the real estate market boom, but also affected the consumer goods market. The potential transmission mechanism of liquidity-driven inflation and policy implications of the findings of this study are discussed.
文摘This paper argues that the main causes of inflation in China since the early 21st century are changes in the public＇s inflation expectations. The conventional wisdom, the quantity theory of money, may not be adequate to capture the relationship between price changes and money supply growth, as the economic system evolves and people ＂s income and wealth grow. An examination of China＇s GDP deflator and broad money supply relative to nominal GDP shows that the relationship between the two series is relatively weak. A further examination of China＇s monthly CPI series over the period 2001-2010 reveals that the autoregressive models are a better fit than the moving average models, which suggests that the role of CPl expectations has been significant and important. Because of the importance of inflation expectations in CP1 movement, we believe the Central Bank＇s monetary policy that targets CPI inflation should emphasize the use of policy instruments that have direct and strong communication links with the public. Quantitative measures would have their own use, but their effectiveness would be unlikely to match that of interest rate measures, especially from a short-term perspective.
文摘This paper evaluates whether globalization has increased the role of global factors in driving inflation in China. Unlike other published studies on the relationship between globalization and inflation, which mostly use Phillips curve models, this paper uses multivariate dynamic models to examine the dynamic interactions between globalization and inflation in China. Empirical results with quarterly data spanning from 1995 to 2012 show that the global output gap significantly affects the dynamics of inflation in China. In particular, the global ou^mat gap is superior to the domestic output gap in predicting domestic inflation. Impulse response and variance decomposition analyses reinforce this finding. Our results indicate that the central bank of China should take developments in global output into account in its monetary policy-making process.
