Study of Major Effects on China’s Inflation 1994-2009 Using GETS Modeling*

Wu Ge
Monetary Policy Department II, People’s Bank of China, Beijing
Abstract: Applying “General to Specific” (GETS) modeling and using PcGets software, this paper studies the relationship between inflation, money supply, output gap, the exchange rate and crude oil prices in China. The empirical study supports the view that a long-term positive correlation exists between inflation and money supply. However, inflation is not an entirely “ monetary phenomenon.” In addition to money supply, other variables also affect inflation. Similarly, there is significant correlation between output gap and inflation. In addition, we cannot overlook the impact of exchange rates on inflation.
Key words: inflation, money supply, output gap

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