Is China Exporting Deflation?

Posted: 10 Feb 2004

See all articles by Steven B. Kamin

Steven B. Kamin

Board of Governors of the Federal Reserve System

Mario Marazzi

Board of Governors of the Federal Reserve System - Division of International Finance (IFDP)

John W. Schindler

Board of Governors of the Federal Reserve System

Date Written: January 2004

Abstract

In the past few years, observers increasingly have pointed to China as a source of downward pressure on global prices. This paper evaluates the theoretical and empirical evidence bearing on the question of whether China's buoyant export growth has led to significant changes in the inflation performance of its trading partners. This evidence suggests that the impact of Chinese exports on global prices has been, while non-negligible, fairly modest. On a priori grounds, our theoretical analysis suggests that China's economy is still too small relative to the world economy to have much effect on global inflation - a back-of-the-envelope calculation puts that effect at about 1/3 percentage point in recent years. In terms of the empirical evidence, we identify a statistically significant effect of U.S. imports from China on U.S. import prices, but given the size of this effect and the relatively low share of imports in U.S. GDP, the ultimate impact on the U.S. consumer prices has likely been quite small. Moreover, imports from China had little apparent effect on U.S. producer prices. Finally, using a multi-country database of trade transactions, we estimate that since 1993, Chinese exports lowered annual import inflation in a large set of economies by 1/4 percentage point or less on average, similar to the prediction of our theoretical model.

Keywords: Exports, prices

JEL Classification: E31, F41

Suggested Citation

Kamin, Steven B. and Marazzi, Mario and Schindler, John W., Is China Exporting Deflation? (January 2004). FRB International Finance Discussion Paper No. 791. Available at SSRN: https://ssrn.com/abstract=498662 or http://dx.doi.org/10.2139/ssrn.498662

Steven B. Kamin (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th St. and Constitution Ave.
Washington, DC 20551
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202-452-3339 (Phone)
202-736-5638 (Fax)

Mario Marazzi

Board of Governors of the Federal Reserve System - Division of International Finance (IFDP) ( email )

20th St. and Constitution Ave.
Washington, DC 20551
United States
202-452-6489 (Phone)
202-872-4926 (Fax)

John W. Schindler

Board of Governors of the Federal Reserve System ( email )

Washington, DC 20551
United States
202-452-3889 (Phone)

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