Expectation,excess liquidity and inflation dynamics in China |
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Authors: | Jisheng Yang |
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Institution: | 1.School of Economics,Huazhong University of Science & Technology,Wuhan,China |
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Abstract: | 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. |
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Keywords: | |
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