The Chinese impact on GDP growth and inflation in the industrial countries

Transcription

1 The Chinese impact on GDP growth and inflation in the industrial countries Christian Dreger German Institute for Economic Research (DIW Berlin) Yanqun Zhang Chinese Academy of Social Sciences (CASS) 1

2 background China is the second largest economy in the world,10% of global GDP in PPP. China s economy has good performance after financial crisis. The rising weight of China have affected the industrial countries. industrial countries have benefited from China due to lower costs. China absorbs more than 10% of the exports from the advanced countries manufacturing and labour intensive industries have gone under high competition The integration can lead to a higher divergence of business cycles between emerging and the advanced countries 2

3 motivation and methodology This paper investigates to what extent the China s economy affects output growth and inflation in the advanced countries, including US, euro area, and Japan Global VAR (GVAR) model is applied as main framework For robustness, the results are compared to global structural macroeconometric models, such as NiGEM (National Institute for Economic and Social Research, 2011) OEF model (Oxford Economic Forecasting, 2011). 3

4 Global VAR model comprise 25 countries and Euro area (8 countries). a convenient framework to explore international transmission mechanisms Papers based on the GVAR: Garratt A., Lee, K., M.H. Pesaran and Y. Shin, 2006, Global and National Macroeconometric Modelling: A Long-Run Structural Approach Dees, S., di Mauro, F., Pesaran, M.H. and Smith, L.V., 2007, Exploring the international linkages of the euro area: a global VAR analysis Pesaran MH, Schuermann T, Weiner SM (2004), Modeling regional interdependencies using a global error- correcting macroeconometric model 4

5 country specific models in GVAR VARX* specification of the i-th country : x a a t x x x u * * it = i0 + i1 +Φ i i, t 1+Λ i0 it +Λ i1 i, t 1 + it (1) x N * it, = wi, jxjt, j= 1 (2) The GVAR model comprises equations for real GDP, CPI. inflation, real equity prices, real exchange rates, nominal short and long term interest rates 5

6 re-specify the VARX* A z = a + a t+ B z + u (3) i it, i,0 i,1 i it, 1 it, xit A i = (I k, Λ,0), B (,,1), = i i i = Φi Λi zit * xit x x x x k k = ( ) 0 ', 1 ',, ' ', = t t t Nt i i= 0 z = W x (4) it, i t N AWx = a + a t+ BW x + u (5) i i t i,0 i,1 i i t 1 i, t 6

7 Global VAR model Gx = a + at+ H x + u (6) t 0 1 t 1 t AW 0 0 BW 0 0 a00 a10 u0t AW 1 1 BW 1 1 a01 a11 u1 t G =, H =, a0=, a1=, ut = AW BW a a u N N N N 0N 1N Nt Provided that G is nonsingular, the dynamics of the system are explored by Impulse Response and Variance Decomposition 7

8 Global Structural Macroeconometric NiGEM and OEF model Models They share some basic properties. Both are designed for forecasting and policy simulation. the equations are fitted to historical data. Individual country models are interlinked via several channels, like trade, commodity prices, asset holdings and associated income flows, like trade, commodity prices, asset holdings and associated income flows, exchange and interest rates. The general structure is similar across countries, Potential GDP results from a Cobb Douglas production function with labour augmenting technical progress. 8

9 demand shock on China s GDP In GVAR the generalized impulse response analysis is applied. In the structural models, the difference to the baseline scenario, i.e. the development without any additional measures is considered. RMB 4 Trillion (586 billion dollar) fiscal stimulus package is considered as an example, about 3.1 and 2.7 percent of positive shock on China s GDP in 2009 and

10 Impulse responses of GDP in China, Japan, US and euro area 10

11 Impulse responses of CPI inflation in China, Japan, US and euro area 11

12 accumulated responses of GDP GVAR NiGEM OEF China Japan US Euro area

13 accumulated responses of CPI inflation GVAR NiGEM OEF China Japan US Euro area

14 conclusion This paper investigates to what extent China s demand shock affects output growth and inflation in the advanced countries. A GVAR model is applied, the results are compared to NiGEM and OEF Responses of output growth in the advanced economies can be quite substantial and significant in GVAR model, larger and robust for Japan, smaller in euro area, not robust in US. 14