Deflation in China
Abstract
This article investigates the causes of the deflation which occurred in China since 1998. The analysis is based on a theoretical model which makes the distinction between tradable and non tradable goods and on the estimation of a reduced equation of consumer prices variations for the period 1986-2002. The results of this estimation corroborate the theoretical assumptions. The main conclusion is that the slowing down of inflation and the fall of prices are chiefly explained by China macroeconomic policy. Moreover and contrary to the current opinion we find that deflation is partly due to the deceleration of productivity growth in the tradable sector.