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.
Table of Contents
Abstract
Table of Contents
List of Figures
List of Tables
1. Introduction
2. Purpose of the Research
2.1 Background Information
2.2 Problem Statement and Research Sub-questions
2.3 Significance of the Problem
2.4 Aim and Objectives
3. Research design
3.1 Literature Review
3.2 Conceptual Framework
3.3 Hypotheses
3.4 Variables
3.4.1 Inflation Rate
3.4.2 Economic Growth Rate
3.5 Methods of Analysis
3.5.1 Statistical Tools
3.5.2 Correlation Coefficient Test
3.5.3 Granger Causality Test
3.5.4 VAR Model Analysis
3.6 Deviations
4. Data
4.1 Source and Data Collection Method
4.2 Sample Design
4.3 Problem Encountered with Data Collection
5. Analysis and Results
5.1 Correlation Coefficient Test
5.2 Granger Causality Test
5.3 VAR Model Analysis
6. Conclusion
7. Recommendation
References
Appendices
Appendix 1 – Data of GDP Growth Rate and CPI
Appendix 2 – Result of Correlation Coefficient
Appendix 3 – Result of Granger Causality Test
Appendix 4 – Result of VAR Model
Appendix 5 – Budget & Timetable
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