Analysis of Economic Growth & Inflation

Research Paper (postgraduate) from the year 2011 in the subject Economics - Finance grade: A University of Newcastle language: English abstract: 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.