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The cost channel of monetary policy and inflation behavior in china

  • Autores: Li Li, Changda Cai
  • Localización: Journal of economic research, ISSN 1226-4261, Vol. 23, Nº. 2, 2018, págs. 131-158
  • Idioma: inglés
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  • Resumen
    • This paper derives an empirical test model of the cost channel on the basis of a New-Keynesian general equilibrium model, i.e., an Interest Rate Augmented Phillips curve, and utilizes GMM Estimation to explore the significance, intensity, and time-varying nature of the cost channel based on quarterly data from 1995 to 2014 in China.

      The empirical analysis finds: First, compared to the traditional channel, the cost channel in China appears to be quite significant and presents strong time-varying characteristics. Additionally, both the traditional demand-side channel and the supply-side cost channel fail to describe the dynamic behavior of inflation. Second, in the process of two-round price rises, in 2007 and from 2010 to the first half year of 2011, the tight monetary policy resulted in rising inflation, and the cost channel had a significant impact on the price rises.

      Furthermore, the above-mentioned research results remain robust to various financing rates. Finally, we propose corresponding policy advice based on our findings.


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