Does Inflation in China Affect the United States and Japan?

IMF Working Papers, February 1, 2006

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With China's share in global trade increasing rapidly, debates emerged in 2002-03 that China was either exporting deflation to other countries by dumping cheap goods in mature markets or sucking in commodities and causing sharp increases in global prices.
The theoretical literature provides mixed conclusions regarding the strength of international transmission of inflation.
This paper uses a number of econometric techniques to assess the extent of the link between inflation rates between China and the United States and Japan.

Limited empirical evidence at the aggregate level for consumer price inflation in China leading to price changes in the United States and Japan.
Some evidence that inflation in the United States has an impact on Chinese inflation, consistent with the literature that argues that inflation is propagated from the reserve currency economy to other economies.
In either direction, the impact is short lived.
At a more disaggregate level, stronger sector-specific linkages appear between prices in China and in the United States and Japan:
- linkages for food prices;
- linkages at the household level for manufactured goods.

Uses a number of econometric techniques to assess transmission between inflation rates in China and those in the United States and Japan.
Analysis conducted both at the aggregate consumer price level and at more disaggregated sectoral levels (food; household manufactured goods).

Subject: Consumer prices, Exports, Food prices, Import prices, Inflation, International trade, Prices
Keywords: absolute value, China, Consumer prices, Deflation, Exports, Food prices, Global, Import prices, Inflation, inflation in the United States, Trade, United States consumer price inflation, United States import price index, United States import price inflation, United States inflation, WP

IMF Working Paper by Luke B Willard and Tarhan Feyzioglu, February 1, 2006.

1. Inflation, 1990–2005
- 1. Inflation, 1990–2005 (Markdown version)
- 1. Inflation, 1990–2005 (PDF)