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Are Prices Sticky In Large Developing Economies? An Empirical Comparison Of China And India

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  • TERENCE TAI LEUNG CHONG

    (Department of Economics and Lau Chor Tak Institute of Global, Economics and Finance, The Chinese University of Hong Kong, Sha Tin, N.T., Hong Kong2Department of International Economics and Trade, Nanjing University, P. R. China)

  • M. S. RAFIQ

    (Asia & Pacific Department, International Monetary Fund, 700 19th Street, N. W. Washington, DC 20431, USA)

  • TINGTING JUNI ZHU

    (Trade and Competitiveness Global Practice, World Bank, Washington, DC, USA)

  • ZHANG WU

    (Department of Economics, The Chinese University of Hong Kong, Sha Tin, Hong Kong)

Abstract
By employing the factor augmented vector autoregression (FAVAR) model, this paper compares the role of macroeconomic and sector-specific factors in price movements for China and India, taking into account the features unique to developing economies. We find that fluctuations in the aggregated prices in China are more persistent than the underlying disaggregated prices. Compared to China, prices in India respond more promptly to macroeconomic and monetary policy shocks. We also show that the urban CPI in China responds more sharply than rural CPI when facing sector-specific shocks, while the opposite is valid for India.

Suggested Citation

  • Terence Tai Leung Chong & M. S. Rafiq & Tingting Juni Zhu & Zhang Wu, 2019. "Are Prices Sticky In Large Developing Economies? An Empirical Comparison Of China And India," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 64(02), pages 341-363, March.
    • Handle: RePEc:wsi:serxxx:v:64:y:2019:i:02:n:s0217590816500314
    DOI: 10.1142/S0217590816500314
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    More about this item

    Keywords

    Disaggregated prices; persistence; common factors;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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