The Research Of Our Country's Inflation Forecasts Based On NKPC Model

Since the Nineties of twentieth century, inflation has become an increasingly significant and important economic phenomenon of ours'country. Inflation can distort price, erode of savings and inhibition of investments and so on to prevent the economy developed healthily, thus effectively controlling inflation which maintains price level stability is the major economic goals that a central bank conducts monetary policy to achieve. Because of the time delay of monetary policy, it requires the central bank depend on the information of future inflation to make policy, which enhance the effectiveness of monetary policy. As a tool controlling inflation effectively, Inflation forecasts has attracted more and more attention and be adopted by inflation targeting countries. Because inflation forecasts can effectively drop the time delay of monetary policy, it has become a key variable when the Central Bank make monetary policy, which has obtained good effect in countries that implement inflation targeting policy.Over the years, to hold price stability and keep the economic grow rapidly are one of the difficulties faced by macroeconomic policies. Since Phillips (1958) proposed the Phillips curve, it has played an important role in macroeconomic theory and inflation forecasts. According to the Phillips curve theory which reflected the use of the demand management policies to increase output or reduce unemployment that will result in inflation, has been used to describe the generating mechanism of inflation and predict the level of inflation. So based on the previous research of foreign countries which is concerning inflation forecasts, and combined with the Phillips curve theory ,the paper select the New Keynesian Phillips Curve model (NKPC) suiting our country. We select the variable sample of 1978 to 2009 of annual data and use the NKPC model that is based on the unit root and Granger causality test to make empirical analysis and forecast. According to the results, it shows that the New Keynesian Phillips Curve model (NKPC) cam predict inflation of our country better. Finally we put forward the related improving measures aimed at the perdition method's shortcomings.