The Imported Inflation In China:Theories And Empirics

With the continuous improvement of China’s openiss, the investigation of China’s domestic economic problems is changing from closed condition to open condition, so is the investigation of China’s inflation. China has been in a very close relationship with the rest of the world in the fields of trade, finance or investment. External economic variables such as external demand for products, the external supply of raw materials, external liquidity, either the number or price changes will be conducted to China through various channels. Therefore, it is become an important question to explore China’s inflation based on an open perspective.China’sposition in the international market is also rising. China’s huge trade exports and huge demand for manufactured goods, raw materials have a significant impact on the international market. China’s trade dependence is also rising. However, in some respects, the influence of our country for the international market is not match with its participation. The pricing of the country’s exports and imports in China is still relatively weak. And our country is continuously improving in the degree of openness, the openness of the financial field is relatively low, so external financial variables pathway is not smooth enough. These factors have determined the difference with other countries when study inflation.We studied the model to analyze the external economic variables. And do theoretical analysis and empirical research from the aspects of external demand factors and external supply factors. First of all, by the estimation of Phillips Curves in open and closed conditions in China, we concluded that China’s inflation is impoted inflation. Based on the analysis of the Phillips curve we studed China’s imported inflation. We find that imported demand and imported supply factors have affect China’s inflation. International trade transmission channels have two ways to affect China’s inflation:imported prices and an increase in external demand. In order to verify the effection we do Empirical analysis to examines the relationship of international commodity prices and China’s inflation.The global output gap also affects the transmission mechanism of China’s imported inflation. We find that the global output gap is significant to China’s inflaton after1998, and domestic output gap is not that significant after1998. According to the estimates of the mixed Phillips curve model under open conditions, the impact of the global output gap to China’s inflation is obvious after1998.By the inspection of the global imported liquidity we find that the external imported liquidity influence China’s foreign exchange reserves and asset prices other than inflationTherefore, this paper argues that imported inflation in China’s inflation performance even more obvious. In the future, as opennessy improving, China’s imported inflation will continue to improve.