Growth and Inflation Cycle in China under Reform
Date Issued
2008
Date
2008
Author(s)
Wang, Chiung-Hui
Abstract
In 1978 China began the road of reform incidentally, and it was the biggest economic achievement in the world. In the past thirty years, China fulfilled at least 10% double digit annual growth every single year. As a gigantic economy, preserving such long-lasting and rapid growth is rarely seen in the history. The purpose of this thesis is to analyze the cycles of the inflation rates and economic growth rates in China. By using a modified Chow test developed by Hansen, we found that the relationship between inflation rates and economic growth rates appeared to be entirely different before and after 1994, indicating there was truly a structural break. Several key institutional features of China’s economic growth such as the soft budget constraints and credit control offered an explanation of the high-growth and high-inflation scenario before 1994. However, the development of an independent central bank and a market-oriented monetary policy offered an explanation of the high-growth and low-inflation relationship after 1994.
Subjects
China’s reform
growth and inflation cycle
regime change
monetary policy
Chow test
SDGs
Type
thesis
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