부산대학교 도서관

In 1978, China implemented economic reform and an “open-door” policy, and gradually shifted from a planned economy to a market economy. This resulted in remarkable economic growth, but sustaining that growth has resulted in sharp price fluctuation. What has caused price fluctuation under China’s conditions of rapid economic growth? Is China’s price fluctuation affected more by factors of aggregate demand (AD), or aggregate supply (AS)? Which economic policies are most effective for maintaining price stability in China? In this paper, I analyze China’s price fluctuation using structural vector autoregression (VAR) analysis, decompose inflation rate time-series into two components explained by aggregate demand and aggregate supply shocks, and consider structural change in price fluctuation using CUSUM of squares test. The analyses demonstrate that aggregate supply shock has influenced GDP output in China, and that aggregate demand shock best explains price fluctuation. By decomposing inflation rate time-series into two components related to aggregate demand shock and aggregate supply shock, it is demonstrated that the relative weight of aggregate supply shock has grown since 1996, although the influence of aggregate demand shock on price fluctuation in China is significant. It is also proved that the structural change in price fluctuation happend in 1996 based on the CUSUM of squares test. After the global financial crisis, China experienced deflation, a factor that could impede healthy economic development. Constraining supply is not indicated as a wise measure to cope with deflation. Rather, deflation pressure can be softened by policies that realize lasting demand creation.