Essays on pandemic and inflation

• Main Author: Zhou, Shihao
• Other Authors: Feng Qu
• Format: Thesis-Doctor of Philosophy
• Language: English
• Published: Nanyang Technological University 2024
• Subjects: Social Sciences
• Online Access: https://hdl.handle.net/10356/174524
• Institution: Nanyang Technological University

In Chapter 1, we study whether containing COVID-19 pandemic by stringent strategies deteriorates or saves economic growth. Since there are country-specific factors that could affect both economic growth and deaths due to COVID-19, we first start with a cross-country analysis on identifying risk and protective factors on the COVID-19 deaths using large across-country variation. Using data on 100 countries from 3 January to 27 November 2020 and taking into account the possibility of underreporting, we find that for deaths per million population, GDP per capita, population density, and income inequality are the three most important risk factors; government effectiveness, temperature and hospital beds are the three most important protective factors. Second, inspired by the stochastic frontier literature, we construct a measure of pandemic containment effectiveness (PCE) after controlling for country-specific factors and rank countries by their PCE scores for deaths. Finally, by linking the PCE score with GDP growth data in Quarters 2 and 3 of 2020, we find that PCE is positively associated with economic growth in major economies. Countries with average PCE scores, such as Malaysia, would gain more GDP growth by 3.47 percentage points if they could improve their PCE scores for deaths to South Korea’s level in Q2 of 2020. Therefore, there is not a trade-off between lives and livelihood facing by governments. Instead, to save economy, it is important to contain the pandemic first. Our conclusion is also mainly valid for infections due to COVID-19. Next, we investigate the Phillips curve in China with a panel specification in this paper. We first construct a capital utilization ratio by using the provincial electricity production and capital stock. This measure can be regarded as a proxy for the conventional output gap computed from GDP. Then, we further decompose the capital utilization ratio into national and region-specific factors by a multi-level dynamic factor model. While a single output gap measure does not reveal a significant Phillips curve relationship in our regression, replacing it with its common components provides strong evidence for the existence of Phillips curve in China. This highlights the effectiveness of our multi-level factor approach in reducing the impact of idiosyncratic components. Hence, this paper serves as a benchmark to study inflation and its dynamic with other macroeconomic variables in countries with large idiosyncratic terms. In Chapter 3, we characterize the inflation and its dynamics with GDP growth in China and compare the results with those of other advanced and emerging economies. This paper first provides a comprehensive picture of inflation in China based on quarterly data from 1993Q1 to 2022Q2. Then, we examine the characteristics of China’s inflation rate and compare them with those from OECD countries and additional developing nations.There are three major findings in this paper. First, China has sustained a fast economic growth with low inflation rate, which shows some similarities with that of other emerging economies. On the other hand, it exhibits an inverse relationship between inflation and GDP growth, while both advanced and emerging economies, which have a positive relationship. Next, more volatile inflation does not lead to higher inflation rate in China. In contrast, we observe positive relationship in other countries.