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Inflation and Economic Growth in China: An Empirical Analysis
Author(s) -
Hwang JenTe,
Wu MingJia
Publication year - 2011
Publication title -
china and world economy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.815
H-Index - 28
eISSN - 1749-124X
pISSN - 1671-2234
DOI - 10.1111/j.1749-124x.2011.01259.x
Subject(s) - economics , inflation (cosmology) , china , inflation rate , real interest rate , economic stability , monetary economics , misery index , index (typography) , consumer price index (south africa) , gross domestic product , percentage point , growth rate , macroeconomics , econometrics , monetary policy , mathematics , physics , geometry , finance , theoretical physics , political science , world wide web , computer science , law
Using official provincial data for gross provincial product, consumer price index and other explanatory variables from 1986 to 2006, the present paper investigates the nonlinear effects of inflation on economic growth in China. The main finding of the study is that the inflation threshold effect is highly significant and robust in China. Above the 2.50 percent threshold, every 1‐percentage point increase in the inflation rate impedes economic growth by 0.61 percent; below this threshold, every 1‐percentage point increase in the inflation rate stimulates growth by 0.53 percent. This indicates that high inflation harms economic growth, whereas moderate inflation benefits growth. We suggest that China should maintain a moderate inflation rate for long‐run growth.