During the past two decades, China’s economy has been growing rapidly, so has the inflation rate. This research focuses on the relationship between China’s inflation rate and economic growth. There are three sub-questions, consisting of whether there is a significant correlation between China’s inflation and economic growth, whether there is a cause-and-effect relationship between China’s inflation and economic growth, and how time factor influences their relationship. The result will be helpful for the government to find a way in order to achieve high economic growth and low inflation.
After reviewing empirical literature, we know that as the dada and methods differ, different researchers have generated different conclusions regarding the relationship between inflation and economic growth. In this research, we use CPI to measure inflation rate and GDP growth rate to measure economic growth rate. All the data are collected from the National Bureau of Statistics of China. We use three methods to analyse data, including the Correlation Coefficient test, the Granger Causality test as well as the VAR model analysis. The result turns out to be that there is a bidirectional causality relationship between inflation and economy growth, but the relationship is not so strong because CPI is not solely driven by GDP. At last, we have come up with three recommendations: firstly, change their model of economic development; secondly, use the monetary policies; thirdly, monitor and predict people’s expectation of inflation.
Table of Contents
1. Introduction
2. Purpose of the Research
2.1 Background Information
2.2 Problem Statement and Research Sub-questions
2.3 Significance of the Problem
2.4 Aim and Objectives
3. Research design
3.1 Literature Review
3.2 Conceptual Framework
3.3 Hypotheses
3.4 Variables
3.4.1 Inflation Rate
3.4.2 Economic Growth Rate
3.5 Methods of Analysis
3.5.1 Statistical Tools
3.5.2 Correlation Coefficient Test
3.5.3 Granger Causality Test
3.5.4 VAR Model Analysis
3.6 Deviations
4. Data
4.1 Source and Data Collection Method
4.2 Sample Design
4.3 Problem Encountered with Data Collection
5. Analysis and Results
5.1 Correlation Coefficient Test
5.2 Granger Causality Test
5.3 VAR Model Analysis
6. Conclusion
7. Recommendation
Research Objectives and Thematic Focus
The primary aim of this research is to investigate the relationship between China's inflation rate and its economic growth rate, specifically testing for correlations and causal dependencies to inform future government policy.
- Analysis of the correlation between China's inflation and GDP growth.
- Examination of bidirectional causality between economic indicators.
- Evaluation of the influence of time factors on these economic relationships.
- Utilization of VAR models to predict and interpret economic shocks.
- Formulation of policy recommendations for sustainable economic management.
Excerpt from the Book
3.1 Literature Review
This part of the research is a summary of empirical literatures that are relevant to our research, including findings of economic researchers and the methods used to investigate into the matter.
Before the 1970s, many researchers believe in the positive or insignificant relationship between inflation and growth. Later on, negative influence has been concluded from Barro (1995), Kim (2000) and Willett’s work. Following this, during the period of 1990s, some economists discovered that the economic and employment growth are followed by low inflation, which means that there are probably a negative link between economic growth and inflation. These economists then adopted various empirical methods to verify their hypotheses and establish a new approach to empirical work concerning the inflation–growth relationship (Fischer, 1993; Sarel, 1996; Khan and Senhadji, 2001; Pollin and Zhu, 2006).
Disagreement among investigations by the researchers for the same issue sometimes happened because of the different data they focus on. Wang (1996) argued that inflation has an insignificant effect on economic growth of the year but negatively influenced the growth of the next year. This result was based on the information from 1978 to 1993 annual data. Besides this, Chen (2007) found out the inflation would negatively influence the economic growth by using the generalized autoregressive conditional heteroskedasticity in mean model and the 1952–2004 period data. In contrast, the positive relationship between the inflation and the economic growth has been found by some researchers who focus on the monthly data to evaluate the short-run relationships (Liu and Xie, 2003; Liu and Zhang, 2004).
Summary of Chapters
1. Introduction: Outlines the research focus on the relationship between Chinese inflation and economic growth, including the methodology and the intended structure of the report.
2. Purpose of the Research: Provides background on China's economic history, defines the specific research sub-questions, explains the significance of the study, and lists the research objectives.
3. Research design: Details the literature review, defines the conceptual framework and hypothesis testing methods, describes variables, and explains the chosen statistical analytical tools.
4. Data: Explains the source and collection methods for the secondary data used, the rationale for the sample design, and difficulties encountered during data gathering.
5. Analysis and Results: Presents the statistical outcomes of the Correlation Coefficient test, the Granger Causality test, and the VAR model analysis, including interpretations of the findings.
6. Conclusion: Summarizes the key findings, including the existence of a bidirectional causality relationship and the impact of external factors on economic variables.
7. Recommendation: Offers three practical policy recommendations for the Chinese government to maintain sustainable growth and manage inflation expectations.
Keywords
China, Inflation, Economic Growth, CPI, GDP, Granger Causality, VAR Model, Economic Policy, Monetary Policy, Statistical Analysis, Correlation, Macro-control, Economic Development, Financial Crisis, Time-series Data.
Frequently Asked Questions
What is the core focus of this research?
The research examines the relationship between China's inflation rate and its economic growth rate, aiming to understand how these two primary indicators affect each other.
What are the central themes of this study?
Key themes include macroeconomic stability, the analysis of price transmission mechanisms, and the impact of fiscal and monetary policy interventions on national economic performance.
What is the primary objective of the research?
The objective is to determine if a significant correlation or a cause-and-effect relationship exists between inflation and GDP growth, thereby providing insights for better government policy-making.
Which scientific methods are utilized?
The research employs a Correlation Coefficient test, the Granger Causality test, and a Vector Autoregression (VAR) model to analyze time-series data.
What is covered in the main body of the work?
The main body covers the literature review, research design, detailed data analysis through statistical software like Eviews, and the interpretation of VAR model results.
Which keywords best characterize this work?
The work is best characterized by terms such as China, Inflation, GDP, Granger Causality, VAR Model, and Monetary Policy.
What does the Granger Causality test reveal about the relationship between inflation and growth?
The test suggests a bidirectional causality, meaning changes in inflation influence economic growth, and conversely, changes in GDP growth rates also impact the inflation rate.
Why did the researchers decide to use CPI instead of PPI?
The researchers chose the Consumer Price Index (CPI) because it is more relevant to people's daily lives and reflects the ultimate price changes of consumer goods, which are the main focus of the study.
- Arbeit zitieren
- Raymond Cook (Autor:in), 2011, Analysis of Economic Growth & Inflation, München, GRIN Verlag, https://www.hausarbeiten.de/document/215677
