Symmetry of shocks across China: a VAR approach

This paper examines how similar shocks are across Chinese regions from 1978 to 2009. Using a SVAR with GDP growth and inflation as dependent variables, we identify the model assuming demand shocks have no long-run effect upon output. We find that both supply and demand shocks are more correlated within China than are their counterparts within Europe or the U.S. as reported in similar studies. Moreover, demand shocks are more strongly correlated than are supply shocks. Output and prices also respond similarly to shocks.