Inflation and inflation uncertainty in China.

Jiang, Dou (2011). Inflation and inflation uncertainty in China. Master's Thesis, School of Economics, The University of Queensland.

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Author Jiang, Dou
Thesis Title Inflation and inflation uncertainty in China.
School, Centre or Institute School of Economics
Institution The University of Queensland
Publication date 2011
Thesis type Master's Thesis
Supervisor A/Prof Kam Ki Tang
Total pages 105
Language eng
Subjects 14 Economics
Formatted abstract

This thesis examines the relationship between inflation and inflation uncertainty in China. Over the past three decades, China has experienced several episodes of high and variable inflation. In order to reduce the welfare costs of increased inflation, it is important for China’s policymakers to understand the channels through which inflation affects the economy. It is commonly believed that one possible channel is that inflation imposes significant economic costs through its effect on inflation uncertainty. Thus, it is worth to investigate the inflation and inflation uncertainty relationship in China. This link is also addressed in China’s urban and rural areas separately given the huge urban-rural gaps. In this thesis, GARCH(1,1) and E-GARCH(1,1) models are used to generate the measure of inflation uncertainty and then Granger causality tests are performed to test for the causality between inflation and inflation uncertainty. GARCH(1,1)-M models are also employed to further investigate the inflation-uncertainty nexus. The results provide strong statistical supportive evidence that higher inflation raises inflation uncertainty. On the other hand, the evidence on the effect of inflation uncertainty on inflation is mixed and depends on the sample period and areas examined. The understanding of inflation-uncertainty nexus in China could provide implications to policymakers in the adoption of monetary policies.

Keyword Inflation
Inflation uncertainty
GARCH models

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Created: Thu, 01 Mar 2012, 14:34:59 EST by Carmen Mcnaught on behalf of School of Economics