Research On The New Phillips Curve In China

Since the reform and opening up, inflation has gradually become a more and more important economic problem affecting the economic development of our country.The new Phillips Keynes curve(NKPC) is the mainstream model of the current research on inflation.Established in line with the characteristics of Chinese economy new Keynesian Phillips curve is beneficial not only to overcome the classical theory of inflation of China’s actual economic situation deficiencies, but also to use the general analysis framework to analyze the formation mechanism of inflation in China.This paper firstly expounds the development and evolution of Phillips curve theory.Then,we use the data from January 2002 to December 2014, in the classic new Phillips Keynes curve model, to make aGMM and maximum likelihood estimation of the formation mechanism of inflation in China.The results show that the impact of inflation inertia is greater than the inflation expectation. The inflation inertia is the main impact factor of the GMM estimate and the cost push is the main factor in the maximum likelihood estimation.The main problem is that:(1) the main factors of inflation inertia is not consistent with the actual situation of economic Chinese conclusion;(2) GMM and maximum likelihood estimation of inconsistent conclusions;(3) the model fitting is not good, only about 40%.According to the incomplete rational expectations and special economic growth economic structure of investment demand stimulating, the inflation expectation is further divided into two parts, which are incomplete information expectation and complete information expectation, based on the theory of information asymmetry.Marginal cost index is extended to the linear combination of marginal cost, marginal cost of capital and marginal cost of imported intermediate goods.Thus forming a better fitting NKPC model, the model fittingis about 70%.The new model shows that the impact of the change of the marginal cost of capital is the most important factor in China’s inflation and the impact of inflation inertia is very small, which is more consistent with the actual situation in China.Therefore, this paper puts forward some empirical and policy suggestions,like using GMM to estimate NKPC, adding investment demand in the model, changing the investment led growth model and enhance macroeconomic policy transparency.