Please wait a minute...
Frontiers of Economics in China

ISSN 1673-3444

ISSN 1673-3568(Online)

CN 11-5744/F

Postal Subscription Code 80-978

Front Econ Chin    2010, Vol. 5 Issue (3) : 421-429
research-article |
Expectation, Excess Liquidity and Inflation Dynamics in China
Jisheng Yang()
School of Economics, Huazhong University of Science & Technology, Wuhan 430074, China
 Download: PDF(608 KB)   HTML
 Export: BibTeX | EndNote | Reference Manager | ProCite | RefWorks

By introducing the shocks from individual activities into the Hybrid New Keynesian Phillips curve (HNKPC), we investigate the inflation dynamics and the effect of excess liquidity in China. According to the estimation result, some soundly conclusions can be drawn. Firstly, the empirical results indicate that the HNKPC is consistent with the nature of inflation dynamics in China, which posits the inflation dynamics as the combination of backward looking adaptive expectations and forward looking rational expectations. Moreover, defining excess liquidity by M2, the elasticity of inflation defined by CPI to excess liquidity is approximately unit, which reveals that the quasi-money is the main force behind inflation. The nature of inflation expectation and the effect of excess liquidity all provide the evidences that tight monetary policy is effective to curbing inflation in China.

Keywords inflation      Hybrid New-Keynesian Phillips curve      expectation      excess liquidity     
Corresponding Authors: Jisheng Yang,   
Issue Date: 05 September 2010
 Cite this article:   
Jisheng Yang. Expectation, Excess Liquidity and Inflation Dynamics in China[J]. Front Econ Chin, 2010, 5(3): 421-429.
[1] Liuyan Zhao, Yan Zhao. Purchasing Power Parity and Price Fluctuations in China before July 1937[J]. Front. Econ. China, 2018, 13(3): 458-483.
[2] Yafang Yu. Testing Commitment Models of Monetary Policy in China[J]. Front. Econ. China, 2016, 11(4): 668-693.
[3] Yang Ji,Ran Li,Jingxian Zou. Is the Phillips Curve Valid in China?[J]. Front. Econ. China, 2015, 10(2): 335-364.
[4] Hongmei Zhao, Vincent Hogan. Measuring the NAIRU — A Structural VAR Approach[J]. Front Econ Chin, 2011, 6(1): 76-91.
[5] FAN Zhiyong, . Is China’s inflation pushed by wages? An empirical research based on excess wages[J]. Front. Econ. China, 2009, 4(4): 572-587.
[6] ZHANG Chengsi. Structural instability of China inflation dynamics[J]. Front Econ Chin, 2009, 4(1): 30-45.
[7] BEI Duoguang , ZHU Xiaoli. A new monetary phenomenon: An analysis of the co-existence of the external appreciation and the domestic inflation of RMB[J]. Front. Econ. China, 2008, 3(3): 327-355.
[8] LIU Jinquan , ZHENG Tingguo , SUI Jianli. Dual long memory of inflation and test of the relationship between inflation and inflation uncertainty[J]. Front. Econ. China, 2008, 3(2): 240-254.
[9] NING Guangjie. Wage forming mechanism in the market transitional process of China (1993—2005): Evidence from the provincial panel data[J]. Front. Econ. China, 2008, 3(2): 312-326.
[10] CHEN Yanbin, MA Lili. Study of the welfare cost of infl ation in China[J]. Front. Econ. China, 2007, 2(4): 490-519.
[11] SONG Bo, GAO Bo. Impact of international capital flows on real estate market: The empirical test in China from 1998 to 2006[J]. Front. Econ. China, 2007, 2(4): 520-531.
[12] ZHAO Liuyan, WANG Yiming. Determinates of the decline in the income-velocity of money in China: a new perspective[J]. Front. Econ. China, 2006, 1(2): 256-271.
[13] LI Tiandong, XUE Shaoqiang, ZHU Qi. The directions of FDI and the self-intensifying expectations of the exchange rate and the effectiveness of sterilized intervention[J]. Front. Econ. China, 2006, 1(2): 207-219.
Full text