An Empirical Analysis Of Nonlinearity Of China's Phillips Curve

Phillips curve expresses the relationship among the unemployment, economic growth and inflation. As an important part in the research of the macroeconomics, it has already developed for a long history. From the time it was put forward, it has always provided important evidence of analysis and reference for the macroeconomics policymaker. The main goals of the government macro-economy control are to keep the economic growth, to preserve the commodity price steady and to realize full employment. Thus, the importance of the Phillips curve research. in the macro-economy control is highlighted.Nevertheless, the problem about the form and the stability of Phillips curve is always one of the focuses of debates among the scholar in economics. Phillips-the presenter of Phillips curve considers it is a curve line, but the subsequent researches are all made under the assumption that the Phillips curve is linear. However, with the development of the research on the problem, some economists began to explore and study the nonlinear form of shot-term Phillips curve, and began to discuss the empirical analysis evidence and policy implications. This paper will discuss the asymmetric Phillips curves which due to the asymmetric price adjustment. The research purpose of this paper is not only to confirm the existence of asymmetries of China's Phillips curve, but also to estimate the form of China's Phillips curve, and then we will give some policy advice for our macroeconomic control due to the nonlinear Phillips curve.The first part of the paper is the introduction which describes the background and significance of the article mainly, and then describes the research development of the Phillips curve and asymmetries of Phillips curve both at home and abroad. The second part is the theoretical part of this paper; it first introduces the generation and development of the Phillips curve theory, then describes the three forms of Phillips curve and mainly introduces the development of the New Keynesian Phillips Curve theory. The third and the fourth part are the empirical parts of the paper. We make a VAR model of the inflation and GDP gap through a series of tests to analyze the impulse response and variance decomposition in the third part, thus we can understand how the inflation and GDP gap response due to different impulse and get a perceptual intuition of the relationship between inflation and economics growth. In the fourth part of the paper, we analyze the asymmetric price adjustment in China's economics, through relative tests, we find that the asymmetric price adjustment exists in China's economics, and then the asymmetries produce the nonlinear Phillips curve. We establish a TAR model of the inflation to describe its asymmetries and a threshold regression model of Phillips curve to describe the relationship of inflation and GDP gap. The fifth part gives the policy suggestion according to the econometric analysis results and the actual conditions of China. In the end of the paper, we point out the innovations and shortcomings of the article, and also present the direction of further research.According to the research and analysis of the paper, we find that there exists the asymmetric price adjustment in China's economics and the Phillips curve is nonlinear, these require the policy maker to pay attention to the asymmetric effect of the monetary policy in the macro-control. The government should adopt appropriate policy according to the actual situation in the different stage of the economic growth. In addition, the government should definitely know the stage and characters of inflation when carry out monetary policy, thus it can take appropriate policy, so that the policy may obtain the expected results.The innovations of this paper are:we also take RESET test. CUSUM test and CUSUM square test on the estimated nonlinear models in order to insure the models are established correctly; we estimate a threshold regression model of Phillips curve on GDP gap not the economic growth which is usually used.The inadequacies of this paper are:the data we used for the empirical analysis is time series data and the sample is small, so the further research may use cross-sectional data to enlarge the sample; we ignored the situation of more than one threshold but only use a threshold as we established the TAR model.