Study Of The Short-term Dynamic Characteristics Of Inflation In China

Output and price are two important macroeconomic variables. The relationship between the two variables is characterized by the Phillips curve, constant revision and improvement have being done to the Philips curve since it was born and up to now it has not only become an important tool in characterizing the dynamic characteristics of the inflation, but also the important part of the spread mechanism of monetary policy. The better portray of inflation dynamic characteristics, the better prediction of the future trend of inflation is. The better prediction can also provide useful information for inflation preventing, controlling and curbing and the better understanding of the inflation dynamic characteristics is the premise of optimal monetary policy design and evaluation.New Keynesian Phillips curve which has the solid microscopic foundation has become an important framework to study the short-term inflation dynamic mechanism. This thesis includes five parts. Apart from the background, the current situation and the sense of the study, the thesis sums up four other parts. The first part is a brief review of the evolution of the Phillips curve theory, among which the new hybrid Keynesian Philips curve theory is the theory basis of this thesis. The second part of the thesis is a simple derivation of the New Keynesian Phillips curve, which can deepen our understanding of the economic implications of the curve. The third part is the core of the article which demonstrates the empirical research of china’s inflation dynamic characteristics. In this part, after a simple introduction of the economic variables involved in the empirical model and a detailed description of the variable data processing, this section is divided into other three parts. The first part is a simple statistical description of China’s inflation and output time series in order to give the intuitive understanding of the dynamic characteristics of China’s inflation; then give the measurement of the degree of china’s inflation inertia from an unvaried angle; Finally use the GMM method to estimate the New Keynesian hybrid Phillips curve including one order of inflation and higher order lagged inflation. The results show that china’s inflation showed a strong inertia characteristic; the high inflation inertia weakened the relationship between the output gap and inflation; level of the expected inflation can largely affect of the current inflation. The Phillips curve including the first-order lagged inflation shows that the impact of the lagged inflation on current inflation is stronger than the expected inflation; the more lagged inflation included in the model, the stronger impact the lagged inflation has on the current inflation. The forth part gives several policy recommendations on the management of inflation expectation and how to reduce the inflation inertia.The significance of this article is not only to measure the degree of China’s inflation inertia from an unvaried angle simple, but estimated the degree of inflation inertia in the Phillips curve framework; the other aspect is the study of inflation dynamic characteristic from three angles that are the expected, lagged inflation and real economic drivers.the conclusions of the research are that the inflation expectation management is necessary for inflation preventing or control, but more importance should be given to figure out the source of the inflation inertia and how to decrease the inertia. However, due to limited level of knowledge, the article did not delve into the source of inflation inertia, which is the biggest shortage of this thesis.