Modeling China Inflation Persistence

Chengsi Zhang


Joel Clovis

This paper employs the recently developed structural stability tests with
unknown break point and two median unbiased estimation methods to model China inflation persistence over the most recent quarter of a century. Our empirical results suggest that the persistence of both consumer price inflation and retail price inflation has witnessed declines over the most recent period of low inflation, with the reduction in consumer price inflation being more pronounced. The reduced inflation persistence helps to explain the remarkable phenomenon of high economic growth under the low inflation environment in China during the recent decade.

Key Words: Inflation; Inflation persistence; Structural break; Monetary policy.
JEL Classification Numbers: E31, E52, E58, C22.