Studies On The Dynamic Mechanism Of Phillips Curve And Macroeconomic Performance In China's Economy

Initially, Phillips curve is put forward by economist Phillips, in accordance with the data of England from 1861 to 1957, estimated the relationship between unemployment and the change of nominal wage. Through the revision of Samulson and Solow, Phillips curve began to express the relationship among the economic growth, unemployment and inflation. Since the economic growth, low unemployment and the stability of price level are the main three objectives of modern macroeconomic management, the relationship among them influence directly whether or not those objectives can be achieved and the selection of macroeconomic policies. In sight of these, Phillips curve called much attention of economists.As for the form of Phillips curves, it is an issue that has long been argued among economists. Phillips (1958) regarded it as a curve, not a line. While later researches concerning Phillips curve are done under the linear assumption. For example, Gorton (1970, 1975, 1978) estimated the American Phillips curves under this assumption. Due to the uncertainty of the estimates of Phillips curves, the issue whether or not Phillips curves can provide guidance for macroeconomic policy makers is now being argued. Gradually some economists began to research the non-linearity of Phillips curves. They began to investigate the empirical evidence of non-linearity and its policy implications. Laxton, Meredith and Rose (1994), Turner (1995), Clark, Laxton and Rose (1996), Debelle and Laxton (1997) researched the one form of Phillips curves'non-linearity–convexity. Basing on the above all researches, this paper discusses another form of non-linearity asymmetric price adjustment and the asymmetric Phillips curves. It is not the purpose of this paper to estimate exactly the form of China's Phillips curves, but it is to confirm the existence of asymmetries, then we can get some enlightenment for our policy making.This paper includes seven chapters:In the first chapter, the author addresses the basic theories concerning Phillips curves. Since its advance in 1958, several economists, like Lipsey, Samulson, Solow and Lucas, have revised Phillips curve. It has now been an important tool for macroeconomic analysis. There are mainly three kinds of Phillips curves:"unemployment-wage"Phillips curves,"unemployment-price"Phillips curves and"output-price"Phillips curves. In addition, influenced by many other factors, the form of Phillips curves may change, there are always two kinds of these changes. The first one is the shape of the curve does not change, while the position changes. This means that the relationship revealed by Phillips curves does not change. The other kind of change is that the shape of Phillips curves changes, that is to say the relationship among growth rate, unemployment and inflation changes.The second chapter is mainly about the time series models and methods, which are used to measure and test Chinese Phillips curve. This chapter is the most important part in this paper. Firstly, the author introduces two kinds of time series data—stationary and non-stationary. Then, the methods to test whether or not the series are stationary are introduced, like the ADF test, PP test. In this chapter, the author also states the detrending methods of time series analysis, such as H-P filter, B-N detrending method. The threshold autoregressive model is also introduced in this chapter. This model is the key one in this paper. It has been put forward by H.Tong in 1975 as a non-linear model. It has been widely used in describing the variables demonstrating non-linearity. And then it is necessary to introduce the methods to test whether or not the linear specification is suitable. The tests used in this paper are RESET, CUSUM and CUSUM square test. CUSUM and CUSUM square tests examine the existence of structure change in the time series, when we do not know when the change happens. RESET test examines the OLS specification's suitability.Chapter three is the key empirical part of this paper. Using the methods mentioned in chapter two, the author tests the asymmetries in the price adjustment and Phillips curves. There are many papers confirming the existence of sticky wage and price associated with menu cost. In this chapter, the author first estimates the linear speciation of inflation pressure, then exerts CUSUM, CUSUM square and RESET tests on them. The results of the tests confirm that the linear specification is unsuitable. Then the author tries to use threshold autoregressive model to fit the inflation pressure. The F statistic of the estimated equation proves the validity of TAR specification. Using the same method, the author estimates the asymmetric Phillips curves. The main purpose of this paper is not to estimate the exact form of asymmetric Phillips curves.The last chapter of this paper is concerning the reasons resulted in the asymmetries and its policy implication. One of the most important explanations for asymmetry is sticky price, which is caused by the staggered price adjustment behavior of business. The sticky price always manifests in the ways of inertia of inflation. The more the stickiness of price, the more the inertia of inflation. The asymmetries of price adjustment and Phillips curves lead to the asymmetry of monetary policy. In different phrase of business cycle, monetary policy has different effects.