Description

This paper quantifies the cross-country comovement between identified China shocks and subsequent core inflation in a panel of 56 countries. We employ a two-step empirical strategy: first, we identify structural innovations in the Chinese economy using a sign-restricted Bayesian SVAR with a bespoke monthly activity index. Second, we estimate the impulse response of global core inflation to the identified shocks via local projections. Methodologically, we introduce a robust in-ferential framework that utilises multiple imputation to rigorously propagate SVAR identification uncertainty in the panel estimates. We find that both China-identified supply and demand shocks have similar responses: a one-standard-deviation posit-ive (negative) shock is associated with a cumulative 0.2 percentage point increase (decrease) in global core inflation over an 18-month horizon. We also find that the response is significantly larger in economies with higher import exposure to China and for durable goods. These results highlight the importance of monit-oring Chinese economic activity and supply-chain conditions for global inflation forecasting.