Supply-side dominance in China’s inflation dynamics: a machine-learning approach

This study conducts a meticulous comparative analysis of macroeconomic elements – including supply, demand, monetary, and external factors – within the context of China’s inflation, highlighting the dominant influence of various shocks. Additionally, building on recent research insights, we demonstrate that high-dimensional macroeconomic models, particularly those employing machine learning techniques, can effectively identify the most influential variables and forecast inflation with enhanced accuracy. Our results contribute to a more nuanced understanding of the dynamics shaping China’s inflation, emphasizing the pivotal role played by different shocks in influencing observed inflationary patterns. This, in turn, enhances our ability to explain and predict inflation in China.