An Investigation on the “Divergence” Between CPI and PPI based on Three Sectors Dynamic Stochastic General Equilibrium Mod
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| Title | An Investigation on the “Divergence” Between CPI and PPI based on Three Sectors Dynamic Stochastic General Equilibrium Mod
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| Author | Lv Jie and Wang Gaowang |
| Organization | Renmin University of China;Shandong Uninversity |
| Email | lujie@ruc.edu.cn；gaowang.wang@sdu.edu.cn |
| Key Words | Divergence of CPI and PPI; Monetary Policy; Three Sectors Model; DSGE |
| Abstract | Since 2000, China's two major price indexes CPI and PPI have appeared "divergence" growth for many times. Especially in the last three years (2011-2013) this phenomenon was more obvious. This inversion growth of different price indexes has weakened the ability of central bank to stabilize prices level. By constructing three sectors dynamic stochastic general equilibrium model (Three Sectors DSGE), we explore the structural causes of CPI and PPI’s divergence. The study found that the flow of labor between different sectors has promoted the expansion of the service sector and contraction in the agricultural sector. CPI raised ups while PPI experienced a short-term rise then began to decline, thus resulting in "divergence" between the CPI and PPI. The three-sector model constructed in this paper is not only good at explaining CPI and PPI's “divergence" growth, but also used for the study of the effectiveness of monetary policy under current china’s dual economic structure. |
| Serial Number | WP816 |
| Time | 2015-02-06 |
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