Green Finance, 2019, 1(4): 429-441. doi: 10.3934/GF.2019.4.429

Research article

Export file:

Format

  • RIS(for EndNote,Reference Manager,ProCite)
  • BibTex
  • Text

Content

  • Citation Only
  • Citation and Abstract

Stabilizing inflation expectations in China: Does economic policy uncertainty matter?

1 School of Statistics, University of International Business and Economics, Beijing 100029, China
2 Guangzhou International Institute of Finance, Guangzhou University, Guangzhou 510405, China
3 Department of Accountancy, Finance and Economics, University of Huddersfield, HD1 3DH, UK

In this paper, we evaluate the impact of economic policy uncertainty shocks on inflation expectations in China by using a MF-VAR approach. We find that China’s inflation expectations are sensitive to policy-related uncertainty shocks. Meanwhile, there exist heterogeneous impacts of national economic policy uncertainty shocks on inflation expectations in China. Overall, the inflation expectations in China rise in response to the European, Japanese and China’s own uncertainty shocks. Whereas, the reaction of the inflation expectations in China to the uncertainty shocks made by both the US and BRICS (except China and South Africa) is negative. The results also reveal that the policy-related uncertainty shocks are dominant driving force of the inflation expectations in China especially during the post-crisis period. In addition, the contribution of China’s domestic uncertainty shocks is remarkably higher than that of foreign uncertainty shocks.
  Figure/Table
  Supplementary
  Article Metrics

References

1. Ang A, Bekaert G, Wei M (2007) Do macro variables, asset markets, or surveys forecast inflation better? J Monetary Econ 54: 1163-1212. Doi: 10.1016/j.jmoneco.2006.04.006    

2. Ankargren S, Unosson M, Yang Y (2018) A mixed-frequency Bayesian vector autoregression with a steady-state prior, Department of Statistics, Uppsala University.

3. Baker SR, Bloom N, Davis SJ (2016) Measuring economic policy uncertainty. Q J Econ 131: 1593-1636. Doi:10.1093/qje/qjw024    

4. Caggiano G, Castelnuovo E, Groshenny N (2014) Uncertainty shocks and unemployment dynamics in U.S. recessions. J Monetary Econ 67: 78-92. Doi: 10.1016/j.jmoneco.2014.07.006    

5. Caggiano G, Castelnuovo E, Figueres JM (2017) Economic policy uncertainty and unemployment in the United States: A nonlinear approach. Econ Lett 151: 31-34. Doi: 10.1016/j.econlet.2016.12.002    

6. Carlson JA, Parkin M (1975) Inflation expectations. Economica 42: 123-138. Doi: 10.2307/2553588    

7. Cerisola M, Gelos G (2009) What drives inflation expectations in Brazil?, an empirical analysis. Appl Econ 41: 1215-1227. Doi: 10.1080/00036840601166892

8. Chen L, Du Z, Tan Y (2019) Sustainable exchange rates in China: Is there the heterogeneous effect of economic policy uncertainty? Green Financ 1: 346-363.Doi:10.3934/GF.2019.4.346    

9. Coibion O, Gorodnichenko Y, Kamdar R (2018a) The formation of expectations, inflation, and the Phillips Curve. J Econ Lit 56: 1447-1491. Doi: 10.1257/jel.20171300

10. Coibion O, Gorodnichenko Y, Kumar S, et al. (2018b) Inflation expectations as a policy tool? NBER Working paper No. w24788. Doi: 10.3386/w24788

11. Davis SJ (2016) An index of global economic policy uncertainty. NBER Working paper No. w22740. Doi: 10.3386/w22740

12. Ferrario A, Guidolin M, Pedio M (2018) Comparing in- and out-of-sample approaches to variance decomposition-based estimates of network connectedness an application to the Italian banking system. Quant Financ Econ 2: 661-701. Doi: 10.3934/QFE.2018.3.661    

13. Fontaine I, Didier L, Razafindravaosolonirina J (2017) Foreign policy uncertainty shocks and US macroeconomic activity: Evidence from China. Econ Lett 155: 121-125. Doi: 10.1016/j.econlet.2017.03.034    

14. Fukuda S, Teruyama H, Toda HY (1991) Inflation and price-wage dispersions in Japan. J Jpn Int Econ 5: 160-188. Doi: 10.1016/0889-1583(91)90020-Q    

15. Gauvin L, McLoughlin C, Reinhardt D (2013) Policy Uncertainty Spillovers to Emerging Markets-Evidence from Capital Flows. SSRN Electron J. Doi:10.2139/ssrn.2273452

16. Ghosh T, Sahu S, Chattopadhyay S (2017) Households' inflation expectations in India: Role of economic policy uncertainty and global financial uncertainty spill-over. Indira Gandhi Institute of Development Research, Mumbai, India.

17. Ghysels E (2016) Macroeconomics and the reality of mixed frequency data. J Econometrics 193: 294-314. Doi: 10.1016/j.jeconom.2016.04.008    

18. Globan T, Arčabić V, Sorić P (2016) Inflation in new EU member states: a domestically or externally driven phenomenon? Emerg Mark Financ Trade 52: 154-168. Doi: 10.1080/1540496X.2014.998547    

19. Gürkaynak RS, Swanson E, Levin A (2010) Does inflation targeting anchor long-run inflation expectations? evidence from the U.S., UK, and Sweden. J Eur Econ Assoc 8: 1208-1242. Doi: 10.1162/jeea_a_00023

20. Hachula M, Nautz D (2018) The dynamic impact of macroeconomic news on long-term inflation expectations. Econ Lett 165: 39-43. Doi: 10.1016/j.econlet.2018.01.015    

21. Hammoudeh S, Reboredo JC (2018) Oil price dynamics and market-based inflation expectations. Energy Econ 75: 484-491. Doi: 10.1016/j.eneco.2018.09.011    

22. Han L, Qi M, Yin L (2016) Macroeconomic policy uncertainty shocks on the Chinese economy: a GVAR analysis. Appl Econ 48: 4907-4921. Doi:10.1080/00036846.2016.1167828    

23. Istrefi K, Piloiu P (2014) Economic policy uncertainty and inflation expectations. Banque de France Working Paper. No. 511. Doi: 10.2139/ssrn.2510829

24. Kang WS, de Gracia FP, Ratti RA (2017) Oil price shocks, policy uncertainty and stock returns of oil and gas corporations. J Int Money Financ 70: 344-359. Doi: 10.1016/j.jimonfin.2016.10.003    

25. Lee YM, Wang KM (2017) How do economic growth asymmetry and inflation expectations affect Fisher hypothesis and Fama's proxy hypothesis? Quant Financ Econ 1: 428-453. Doi: 10.3934/QFE.2017.4.428    

26. Lei CY, Lu Z, Zhang CS (2015) News on inflation and the epidemiology of inflation expectations in China? Econ Syst 39: 644-453. Doi: 10.1016/j.ecosys.2015.04.006    

27. Li Z, Zhong J (2019) Impact of economic policy uncertainty shocks on China's financial conditions. Financ Res Lett, [in press]. Doi: 10.1016/j.frl.2019.101303

28. Malmendier U, Nagel S (2016) Learning from inflation experiences. Q J Econ 131: 53-87. Doi:10.1093/qje/qjw037    

29. Mullineaux DJ (1980) Inflation expectations and money growth in the United States. Am Econ Rev 70: 149-161. URL:https://www.jstor.org/stable/1814744

30. Pearce DK (1987) Short-term inflation expectations: Evidence from a monthly survey: note. J Money Credit Bank 19: 388-395. Doi: 10.2307/1992084    

31. Pesaran MH (1985) Formation of inflation expectations in British manufacturing industries. Econ J 95: 948-975. Doi: 10.2307/2233258    

32. Schorfheide F, Song D (2015) Real-time forecasting with a mixed-frequency VAR. J Bus Econ Stat 33: 366-380. Doi: 10.1080/07350015.2014.954707    

33. Serdar O, Ismet G (2019) Re-considering the Fisher equation for South Korea in the application of nonlinear and linear ARDL models. Quant Financ Econ 3: 75-87. Doi: 10.3934/QFE.2019.1.75    

34. Stockhammar P, Österholm P (2015) Effects of US policy uncertainty on Swedish GDP growth. Empir Econ 50: 443-462. Doi:10.1007/s00181-015-0934-y

35. Szyszko M, Płuciennik P (2018) Factors driving consumers' inflation expectations: does the central bank's inflation forecast really matter? Eastern Eur Econ 56: 307-328. Doi: 10.1080/00128775.2018.1467781    

© 2019 the Author(s), licensee AIMS Press. This is an open access article distributed under the terms of the Creative Commons Attribution Licese (http://creativecommons.org/licenses/by/4.0)

Download full text in PDF

Export Citation

Article outline

Show full outline
Copyright © AIMS Press All Rights Reserved