Measuring China's core inflation for forecasting purposes: taking persistence as weight

Zou, Fan; Hu, Yushan; Zhang, Penglong

doi:10.1007/s00181-021-02128-x

Cited by 6 publications

(9 citation statements)

References 24 publications

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“…Specifically, our SVAR model is built on the Quah-Vahey (1995) model's theoretical and practical practices. Many studies primarily choose the Quah-Vahey (1995) model as a benchmark method (Quah & Vahey, 1995;Xuan, 2015;Günay, 2018;Fan et al, 2021). In the interest of considering the effect of a monetary shock on psychological inflation, we expanded the bivariable model of Quah-Vahey into a trivariate SVAR, taking the money supply growth rate as an additional variable.…”

Section: Robustness Testsmentioning

confidence: 99%

Psychological inflation: Definition and measurement

Pham,

Nguyen,

2024

JEECAR

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Conventional monetary policy tools became less effective, with nominal short-term interest rates approaching the zero-lower bound during COVID-19. Instead, central banks adopted a range of unconventional monetary policies. Thus, perceived inflation has become a key channel for monetary policy transmission. Despite how vital perceived inflation is, quantifying perceived inflation with accuracy remains questionable and challenging. As a result, we focus on developing a novel measurement of perceived inflation - the psychological inflation index. Our approach is based on psychological theories and considers loss aversion, which creates advancements to previous versions. The new index satisfies many expected criteria: (i) it broadly co-moves with the headline inflation index during everyday contexts; (ii) it captures abnormal price evolution better than headline inflation during crisis periods; (iii) it links tightly with monetary policy and economic dynamics. Psychological inflation, therefore, might be helpful in forecasting headline inflation, estimating real interest rates, predicting economic players' behavior, and setting salaries and prices. Psychological inflation, combined with headline inflation, provides a clearer picture of the credibility of monetary policy.

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Section: Robustness Testsmentioning

confidence: 99%

Psychological inflation: Definition and measurement

Pham,

Nguyen,

2024

JEECAR

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“…Using maximal overlap discrete wavelet transform (MODWT), Saboori-Deilami and Bashiri (2021) estimates Iran's monthly series of core inflation, and proposes that core inflation indicators estimated by the method are superior to traditional wave filters in terms of persistence. However, the single-indicator filtering methods have a few inherited constraints: 1) the settings of wave filter parameter are subjective (Baxter & King, 1999;Fan et al, 2022); 2) the estimating results lack economic significance (Pincheira-Brown et al, 2019); 3) only the overall price fluctuations are reflected, while structural price changes are missing (Baqaee, 2010;Stock & Watson, 2020).…”

Section: Literature Reviewmentioning

confidence: 99%

“…As a supplement to the single-indicator filtering method, the synthesis of multiple indicators based on the CPI components divides core inflation measurement into two steps: step 1 measures sectoral core inflation; step 2 estimates the overall core inflation by weighting sectoral core inflation. The method gradually becomes the mainstream of core inflation measurement thanks to strong economic significance and solid micro foundation (Stock & Watson, 2016, 2020Carriero et al, 2020;Fan et al, 2022). For example, Elmer and Maag (2009) finds that the common factor of Switzerland's inflation system only accounts for less than 30% of the overall inflation during 1983-2008 using a dynamic factor model, which implies that it is infeasible to discover the sectoral imbalance and structural contraction of price system by observing the CPI solely.…”

Section: Literature Reviewmentioning

confidence: 99%

Solving the Puzzle of China’s Low Inflation: A New Perspective From Sectoral Core Inflation Fluctuations

Liu,

Xu,

Song

et al. 2024

Technological and Economic Development of Economy

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China’s constantly rapid economic growth accompanying by a low overall inflation has long been mysterious in macroeconomics. The core purpose of this paper is to solve this puzzle. Therefore, we integrate overdetermined set of equations into a MUCSVO model to explore the volatility mechanism of the overall inflation from a sectoral perspective. Our key findings include: 1) the hedging effect of sectoral inflation fluctuations principally accounts for China’s long-run stable overall inflation; 2) the main contradiction of China’s inflation has been shifting from high price levels in the traditional food and residence categories to rising prices in the health care category; 3) as the proportions of inflation in the food and residence categories fall steadily, sectoral inflation weights become more evenly distributed. In conclusion, China’s overall inflation and deflation will be much less likely to occur, while inflation is still of sectoral imbalance. Unusual price fluctuations in the food and health care categories, which are highly relevant to basic living standards of the low-income group, deserve close attention in particular. Overall, besides solving the puzzle of China’s low inflation, our model is applicable to economies that do not publish inflation weights, which is a useful extension of core inflation measurement.

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“…They are different from the information disclosure of central government that mainly focuses on fiscal and monetary policies. See Hu and Zhang (2021a) and Fan et al. (2021) for more discussion on monetary information disclosure in China.…”

Section: Notesmentioning

confidence: 99%

“…mainly focuses on fiscal and monetary policies. See Hu and Zhang (2021a) and Fan et al (2021) for more discussion on monetary information disclosure in China.…”

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confidence: 99%

Internet access and irrigation adoption in China

Wang

Zhang

2022

CAER

Self Cite

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PurposeThis study aims to examine the effect of the Internet on irrigation system adoption. The authors implement the most extensive household survey of irrigation arrangements ever conducted in rural China and also exploit a public program to improve the quality of distance education in rural middle schools, which has led to plausibly exogenous variation in Internet access across rural districts.Design/methodology/approachThe authors present a conceptual framework highlighting the transmission mechanisms whereby Internet access may affect irrigation system selection and identify direct effects through agricultural production and an indirect effect through non-agricultural production. To examine the effect of the Internet on irrigation system adoption, we implement the most extensive household survey of irrigation arrangements ever conducted in rural China. We also exploit a public program to improve the quality of distance education in rural middle schools, which has led to plausibly exogenous variation in Internet access across rural districts.FindingsThe authors find evidence to suggest that Internet access can effectively reduce information frictions and searching costs in the non-agricultural labor market, thus increasing rural households' participation in non-farm work. To save more hours from agricultural production, rural households select more labor-saving irrigation systems.Originality/valueThis study’s findings have important implications for the ongoing policy debate over government investment in Internet infrastructure to improve agricultural development in rural and isolated areas.

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Measuring China's core inflation for forecasting purposes: taking persistence as weight

Cited by 6 publications

References 24 publications

Psychological inflation: Definition and measurement

Psychological inflation: Definition and measurement

Solving the Puzzle of China’s Low Inflation: A New Perspective From Sectoral Core Inflation Fluctuations

Internet access and irrigation adoption in China

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