Studies On The Nonlinear Phillips Curves And Management Of Inflation Expectation

Sustained economic growth, price level stability and the achievement of full employment is a primary objective of national macro-control. In the study of macroeconomics, the Phillips curve has been described as the relationship on the price and output, prices and unemployment, wages and unemployment, the law has the material effect regarding the judgment macro economic situation and the formulation economic policy. Phillips curve is used to build the one hand macroeconomics aggregate supply curve, on the other hand used to characterize the expected inflation and the generation and transmission mechanism, and is used extensively for forecasting inflation Expansion and inflation expectations. With the changes of the economic situation, the embodiment and mechanism of the Phillips curve has also changed, which results in economic structure, market structure and macro mode selection revelation changes. In addition, inflation expectations management has become an important part of macro-control. Inflation expectation as the unobservable component, played a very important role. The inflation rate is expected to directly affect consumption, investment and savings decisions and other acts of the path. In this context, this paper is worked for the nonlinear characteristics of the Phillips curve and inflation expectations management related issues. The structure of this paper consists of the following six chapters.In Chapter 1, we mainly reviewed the following aspects of the literature. Firstly, review the Phillips curve literature;Secondly, review inflation expectations literature; Thirdly, review the literature of monetary policy. In addition, this paper introduces the research background and significance of the topic, the basic structure and major innovation.In Chapter 2, we focuse on the theoretical models and measurement methods. The core of this model - the Phillips curve model has undergone continuous development. This chapter describes the evolution of the model, which highlights this thesis to estimate the New Keynesian Phillips curve model of the theoretical framework, classification and evaluation of the model theorists conclusion. In addition, the paper used in this chapter also describes the relevant measurement methods.In Chapter 3, as research object to the growth rate of real output and inflation rate, we use the state space model, Kalman filtering to obtain the expected inflation rate and the actual output gap estimates at the same time. Then, we use GMM method to estimate the China's hybrid New Keynesian Phillips curve ,and the test results prove the existence of the "output - price " Phillips curve type in China. Also, the inflation not only has relationships with inflation expectations and the actual production gap, but also to have some continuity, so we respond to accelerating inflation, need to strengthen the management of inflation expectations and maintain steady economic growth.In Chapter 4,we use STAR model to characterize the nonlinear form of the Phillips curve, the results show that both as the output gap or inflation expectations for the transfer variables, the Phillips curve has significant nonlinear characteristics, and this non-linear adjustment mechanism is characterized by the logic function. As the output gap for the transfer variable, nonlinear conversion of inflation and output gap occurs in the vicinity of the output gap that is zero, this structural transformation occurs in the output gap lagged 7. This shows that our Phillips curve describes the relationship between inflation and output gap depending on the macroeconomic situation about two years ago, and the transfer speed mechanism of regulation is significant. As inflation expectations for transfer variable, the nonlinear conversion of inflation and inflation expectations occurs in about 2.6%. The structural transformation takes place in the next issue of inflation, and the speed of mechanism of conversion is significant.In Chapter 5, we use inflation expectations that have been estimated in front to analysis the relationship between inflation and inflation expectations. The results show that the residents'inflation expectations and the actual inflation have a long-term cointegration relationship. China's inflation expectations have greater impact on the lagged actual inflation, which shows that consumers based on the current and past actual inflation to determine the inflation expectations. Therefore, to stablize the inflation expectations is the best way to maintain low and stable inflation. Impulse response functions show that the current volatility of actual inflation would impact the next issue of the of inflation expectations and last a relatively long time. That is to say , the consumers form expectations by considering the situation of inflation in recent years. Actual inflation reaction from the impact of inflation expectations is not obvious, but after two or three quarters, inflation expectations affect actual inflation will maximum. This shows that inflation expectations affect actual inflation is not immediately apparent , in the economy the other factors that determine the actual inflation play a major role in the short term, and consumers will be expected to take some time to pass expectation to the final price by demand and supply channels.In Chapter 6, we respectively estimate the linear and nonlinear Taylor rule. We estimate the linear Taylor rule using the GMM method, the results show that the forward-looking Taylor rule considering interest rate smoothing is more in line with our reality. The smoothing feature in China's interest rate policy performances significantly, the basic interest rate smoothing parameter is about 0.9. Inflation factor is significantly positive, but less than 1, which fully demonstrates China's interest rate policy on inflation inadequate response, that is inherently unstable. Next, to estimate the nonlinear Taylor rule, using a smooth switching model (STAR), as the expected inflation and output gap for the transfer variable ,the test results show that interest rates policy exists a significant form of nonlinear relationship LSTR1, that of monetary policy as inflation and economic growth is expected to change on inflation and output to make asymmetric reaction. As the expected inflation for the transfer variable, it is characterized by the transfer function of logic functions in both sides of = 3.50% showing a non-symmetry. As the output gap for the transfer variable, it is characterized by the transfer function of logic functions in both sides of = 9.12% showing a non-symmetry. Monetary policy responding to output and inflation coefficients are greater than 0, which means that when the economy is growing faster than the growth rate or inflation target higher than the inflation target, the central bank should raise interest rates, whereas the interest rate should be reduced. Selecting a different transfer variables found that the response of monetary policy on inflation coefficient greater than 1, indicating that interest rate changes on inflation and stable system with good, that indicates non-linear Taylor rule of monetary policy reaction function has a good stability.