An Empirical Analysis Of Inflation And Unemployment In China

The inflation and employment are the two basic issues in the macroeconomics, and the current high inflation and big pressure of employment which our country faces now make the research on the relationship between inflation and employment to be a meaningful thing. This paper firstly reviews the history of inflation and employment in our country since 1979, revealing the research background, then introduces the normal instrument of research-Phillips Curve Theory, and sums up its development history in the West and its appliance in China.Next, this paper analyses the causes of problems in the inflation and employment separately, then makes the Phillips Curve model based on output gap inserting the Okun law because of the defection of the unemployment statistic data, and test its validity in China next: Firstly it estimates the output gap using H-P filter, and analyses the stationarity of the inflation rate and output gap, then makes the VAR model, and analyses the model's stationarity, impulse response graph, and variance decomposition result. In order to further test the causality of the inflation rate and output gap, this paper does the Granger Causality Test, improves the former VAR model, and makes the inflation rate and output gap's regression model. The result says that the Phillips Curve Theory is valid in our country, and has adaptability.This paper also makes the dynamic optimization model for Phillips Curve Theory's better application in the policy, and gets the conclusion: although the inflation policy can reduce the cycle unemployment, the efficacy is not very good, so we should pay more attention to how to reduce the natural unemployment.Finally, this paper puts forward some suggestions to our country's current situation, and points out that it is necessary to take action for inflation problem, but we can't forget the employment, and we should make the steps moderatly.