China's Economic Slowdown and International Inflation Dynamics

I fit t a high-dimensional macroeconomic dataset of 41 countries to a factor-augmented vector autoregressive model to examine the role of the recent Chinese economic slowdown for international inflation dynamics. I identify Chinese supply and demand shocks and examine their contributions to international price indicators.
My main fi ndings are: (i) Impulse response analyses indicate that Chinese business cycle shocks and especially demand shocks signi cantly spill over to inflation rates in Europe, North America, Asia and Oceania, mainly transmitted through global oil, commodity and manufacturing prices. (ii) The Chinese growth slowdown that started in 2012 can be attributed to a fall in aggregate Chinese demand and supply. (iii) Historical decompositions indicate that the fall in Chinese demand lowered national prices in Europe, North America, Asia and Oceania by up to 12 percent from the third quarter of 2013 on.

Keywords: China's Economic Slowdown, Global in ation, Spillovers, Factor Augmented Vector Autoregressive Model

JEL classi cation: E31, F44, F62

Author: L. Salzmann
Volume: 2018.03
Publisher: INFER
Year: 2018
No. of pages: 32
Category: INFER working papers



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