The Research On The Dynamic Features Of The Phillips Curve In China

Phillips curve is key content of macroeconomics as well as the focus of disputebetween various schools of modern western economics. In western countries, thePhillips curve model has been extensively researched and applied in-depth, but thePhillips curve model analysis and projections for inflation in China is still ondevelopment. To apply the Phillips curve theory of western China’s economic topractice, it is necessary to take the actual situation of the Chinese economy in seriousconsideration. Traditional Phillips curve does not fully reflect the dynamic features ofthe Phillips curve in China, thus it can’t tell the difference of inflation rate‘ssensitivity to output gap in different periods and its variation trend. All these lead torelatively poor performance when it’s used in analysis and forecast. Therefore,empirical research into the dynamic features of Phillips curve in China and analysisof dynamic change law of inflation rate‘s sensitivity to output gap are of the certainsignificance in terms of completing the Phillips curve theory research and forecastingthe inflation rate to improve the effectiveness of the monetary policy.Based on the review of development and evolution of the Phillips curve theory, thispaper summarizes the main forms of the Phillips curve, and compared the maindifferences among different schools of Phillips curve. Studying China’s annualeconomic data from1978to2011, it builds the "price-output" variable parametermodel of Phillips curve of China, and uses state space model to estimate the dynamicfeatures of "price-output" Phillips curve in China, and analyzes the results. Throughempirical research, this paper argues that:"price-output" Phillips curve in Chinadevelops a positive slope in general, i.e. the rate of inflation is sensitive to the changeof the output gap, or in other words, the price and output are positively related; Theinflation rate’s sensitivity to the output gap was "convex" developed, which isdetermined by the process of China’s economic system and price system reform;"Price-output" dynamic features of the Phillips curve in China are closely related toChina’s economic cycle and the economic operation. This paper puts forward thefollowing suggestions: continue to deepen the reform, improve the system of socialist market economy and solve problems according to the driven type of inflation. It alsopoints out the shortages of this paper and problems in further research.