The relevance of domestic and foreign capacity utilization rates in forecasting future inflation rate has been investigated empirically, using five industrialized countries for which the comparable data are available. It has been found that capacity utilization rates, both domestic and foreign, have a long run stable relationship with domestic inflation rate and a positive shock in the capacity utilization rate results in a significant, although a little bit delayed, acceleration in the domestic inflation rate. Various econometric techniques have been used and led to consistent empirical findings. The results in the present study, therefore, dispute the claim that an increase in capacity utilization rate may not necessarily lead to an accelerated inflation down the road. / Graduation date: 1995

Yuan, Jiang. / Thesis (M.Phil.)--Chinese University of Hong Kong, 2009. / Includes bibliographical references (leaves 48-51). / Abstract also in Chinese. / Chapter Chapter 1 --- Introduction --- p.1 / Chapter Chapter 2 --- Literature Review --- p.5 / Chapter 2.1 --- Theoretical Literature --- p.5 / Chapter 2.1.1 --- Menu Cost Model --- p.5 / Chapter 2.1.2 --- Signal Extraction Model --- p.6 / Chapter 2.1.3 --- Monetary Search Model --- p.7 / Chapter 2.2 --- Empirical Literature --- p.8 / Chapter Chapter 3 --- Inflation and Relative Price Variability in a Transitional Economy Evidence from China --- p.10 / Chapter 3.1 --- Data and Variables --- p.10 / Chapter 3.2 --- Inflation Decomposition --- p.19 / Chapter 3.3 --- Empirical Evidence --- p.14 / Chapter 3.3.1 --- Inflation and RPV --- p.14 / Chapter 3.3.2 --- Robustness --- p.18 / Chapter 3.4 --- Conclusion --- p.20 / Chapter Chapter 4 --- Inflationary Regimes and Relative Prices --- p.22 / Chapter 4.1 --- Introduction --- p.22 / Chapter 4.2 --- The Change of Inflationary Regimes in China: 1978-2008 --- p.23 / Chapter 4.3 --- Inflationary Regimes and Relative Price --- p.25 / Chapter 4.3.1 --- Preliminary Evidence --- p.25 / Chapter 4.3.2 --- Empirical Evidence --- p.27 / Chapter 4.4 --- Structure Change --- p.32 / Chapter 4.4.1 --- Endogenous Breakpoint Test --- p.32 / Chapter 4.4.2 --- Test Results on the Changing Role of Expected Inflation --- p.33 / Chapter 4.5 --- Conclusion --- p.35 / Chapter Chapter 5 --- Institutional Cost and Relative Price Variability --- p.36 / Chapter 5.1 --- Introduction --- p.36 / Chapter 5.2 --- "Institutional Cost, Price Adjustment, and Relative Price Variability in China" --- p.38 / Chapter 5.2.1 --- Background --- p.38 / Chapter 5.2.2 --- Institutional cost --- p.39 / Chapter 5.2.3 --- The relationship between institutional cost and relative price variability --- p.42 / Chapter 5.3 --- The Empirical Evidence --- p.43 / Chapter 5.4 --- Conclusion --- p.45 / Chapter Chapter 6 --- Conclusion and Implications --- p.46 / Reference --- p.48

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This thesis is a technical inquiry into remedies for high inflation. In its center there is the usual tradeoff between inflation aversion on the one hand and some benefit from inflation via Phillips curve effects on the other hand. Most remarkable and pioneering work for us is the famous Barro-Gordon model - see (Barro & Gordon 1983a) respectively (Barro & Gordon 1983b). Parts of this model form the basis of our work here. Though being well known the discretionary equilibrium is suboptimal the question arises how to overcome this. We will introduce four different models, each of them giving a different perspective and way of thinking. Each model shows a (sometimes slightly) different way a central banker might deliver lower inflation than the one shot Barro-Gordon game at a first glance would suggest. To cut a long story short we provide a number of reasons for believing that the purely discretionary equilibrium may be rarely observed in real life. Further the thesis provides new insights for derivative pricing theories. In particular, the potential role of financial markets and instruments will be a major focus. We investigate how such instruments can be used for monetary policy. On the contrary these financial securities have strong influence on the behavior of the central bank. Taking this into account in chapters 3 and 4 we come up with a new method of pricing inflation linked derivatives. The latter to the best of our knowledge has never been done before - (Persson, Persson & Svenson 2006), as one of very view economic works taking into account financial markets, is purely focused on the social planer's problem. A purely game theoretic approach is done in chapter 2 to change the original Barro-Gordon. Here we deviate from a purely rational and purely one period wise thinking. Finally in chapter 5 we model an asymmetric information situation where the central banker faces a trade off between his current objective on the one hand and benefit arising from not perfectly informed agents on the other hand. In that sense the central bank is also concerned about its reputation.

published_or_final_version / Asian Studies / Master / Master of Philosophy