Measuring China’s Core Inflation: A Common Trends Approach

Samuel Albert Andriamiarintsaina RANDRIANTSOAVINA

Abstract


In this study, we estimate core inflation in China using a common trends model over the period from July 2017 to July 2021. In this framework, core inflation is estimated from the information contained in the following variables: the Consumer Price Index (CPI), the Money Supply (M2), and the Industrial Production Index (IPI). Unlike other commonly used measures such as the structural VAR model, the core inflation obtained by the common trends method has a strong correlation with monetary growth and less volatile than headline inflation. It provides an estimate of underlying inflation based on broader information, integrating macro-economic variables which play an important role in determining the long-term inflation rate. It thus makes it possible to identify the strategies of monetary and budgetary policies making it possible to achieve the inflation target and an economic growth objective.


Keywords


Core inflation, Common trends model, Structural VAR, Monetary policy

Full Text:

PDF

References


. Andrew Atkeson,V.V. Chari,Patrick J.Kehoe(2007).On the optimal choice of a Monetary Policy Instrument. Federal Reserve of Mineapolis, Research Departement Staff Report 394.

. Bagliano, F. C., &Morana, C. A. (1999). Measuring core inflation in Italy. Giornale degli Economisti, 58, pp.2–18.

. Bagliano, F. C., &Morana, C. A. (2003a).Common trends model of UK core inflation. Empirical Economics, 28, pp.157–172.

. Bagliano, F. C., &Morana, C. (2003b). Measuring US core inflation: A common trends approach. Journal of Macroeconomics, 25, pp.197–212.

. Blix, M. (1995). Underlying inflation: A common trends approach (SverigesRiksbank Working Paper No. 23).

. Bryan and Cecchetti (1994). Measuring core inflation, The University of Chicago Press, pp.195-219.

. Poole,William(1970). Optimal choice of Monetary Policy Instruments in a Simple Stochastic Macro Model, Quaterly Journal of Economics,197-216.

. Quah, D., &Vahey, S. P. (1995). Measuring core inflation. The Economic Journal, 105, pp.1130–1144.

. Stock, J.H., Watson, M.W(1988).Testing for common trends. Journal of the American Statistical Association 83 (December), 1097–1107.

. S Raja Sethu Durai & M Ramachandran(2007). Core inflation for India, Journal of Asian Economics,vol 18,pp 365-383.

. Warne, A. (1993). A common trends model: Identification, estimation and inference (IIES, Stockholm University Seminar Paper No. 555).

. ZanYang,Songtao Wang(2012). Permanent and transitory shocks in owner-occupied housing: A common trend model of price dynamics. Journal of Housing Economics 21(4):336-346.




DOI: http://dx.doi.org/10.52155/ijpsat.v48.2.6894

Refbacks

  • There are currently no refbacks.


Copyright (c) 2025 Samuel Albert Andriamiarintsaina RANDRIA

Creative Commons License
This work is licensed under a Creative Commons Attribution 4.0 International License.