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SOLVING THE PUZZLE OF CHINA'S LOW INFLATION: A NEW PERSPECTIVE FROM SECTORAL CORE INFLATION FLUCTUATIONS.

Authors :
Dayu LIU
Bin XU
Yang SONG
Tingyu LIU
Source :
Technological & Economic Development of Economy; 2024, Vol. 30 Issue 3, p783-808, 26p
Publication Year :
2024

Abstract

China's constantly rapid economic growth accompanying by a low overall inflation has long been mysterious in macroeconomics. The core purpose of this paper is to solve this puzzle. Therefore, we integrate overdetermined set of equations into a MUCSVO model to explore the volatility mechanism of the overall inflation from a sectoral perspective. Our key findings include: 1) the hedging effect of sectoral inflation fluctuations principally accounts for China's long-run stable overall inflation; 2) the main contradiction of China's inflation has been shifting from high price levels in the traditional food and residence categories to rising prices in the health care category; 3) as the proportions of inflation in the food and residence categories fall steadily, sectoral inflation weights become more evenly distributed. In conclusion, China's overall inflation and deflation will be much less likely to occur, while inflation is still of sectoral imbalance. Unusual price fluctuations in the food and health care categories, which are highly relevant to basic living standards of the low-income group, deserve close attention in particular. Overall, besides solving the puzzle of China's low inflation, our model is applicable to economies that do not publish inflation weights, which is a useful extension of core inflation measurement. [ABSTRACT FROM AUTHOR]

Details

Language :
English
ISSN :
20294913
Volume :
30
Issue :
3
Database :
Complementary Index
Journal :
Technological & Economic Development of Economy
Publication Type :
Academic Journal
Accession number :
177587417
Full Text :
https://doi.org/10.3846/tede.2024.20532