Research Paper (postgraduate) from the year 2011 in the subject
Economics - Finance, grade: A, University of Newcastle, language:
English, abstract: 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.
