The Empirical Analysis Of The Relationship Between Inflation And Economic Growth

Since the reform and opening up for 30 years, China has gradually established a market economic system, science technology has been changing with each passing day, and economic development has made remarkable and unprecedented achievements, total scale always ranks among the top of the world. At the same time, inflation also go hand in hand. In this context, C hina has experienced four more serious inflation, macroeconomic stability and security of the community have had a certain impact. Friedman believes that inflation is a monetary phenomenon, and its essence is too much money chasing too few goods, more generally speaking, too much money is available in the market, money is worthless. Inflation persistence in fact is a direct consequence of monetary policy. Maintain price level stability and sustained economic growth is the primary basis for an important sign of good macro-economic operation, but a lso the social stability and development. Inflation as an important indicator of the price level, has become one of the important parameters that affect many economic areas of capital markets, futures markets, foreign exchange markets and the like.So study the relationship between inflation and economic growth is necessary, the problem is also one of the more academic macroeconomics hot topic. Many scholars have discussed this problem from different point of view, and different methods have been studied, ma ny valuable conclusions drawn, but not conclusive. Early studies generally believe that the relationship between inflation and economic growth is linear. In this context the above assumption, scholars used different methods for measuring the relationship between inflation and economic growth, and did a lot of empirical research. In the 21 st century, worldwide outbreak of serious financial crisis and the subprime mortgage crisis, which makes people have to re-examine the relationship between inflation and economic growth. With the continuous improvement of relevant theory and research methods, more and more scholars found that the relationship between inflation and economic growth is not just that there may be linear, non- linear relationship, even non- monotonic. Compared with the traditional linear model, nonlinear model can be more vivid characterization and interpretation of inflation and economic growth asymmetric evolution.This paper summarizes the current inflation and economic growth on the basis of relevant studies, the use of CF filter analysis, vector auto regression(VAR) model, Hansen threshold autoregressive(TAR) model, starting from three different perspectives, more comprehensive and detailed analysis of the relationship between inflation and economic growth. Came to the following conclusions:(1) a clear co-movement between inflation and economic growth. Every increase in the price level, will be accompanied by a short period of economic growth. Fluctuations in inflation is larger than economic growth, suggesting that inflation is more sensitive to reflect the economic and social development.(2) From Granger causality test, we can find out that there is a two-way Granger causality between inflation and economic growth, in some lag period, this causal relationship is still significant. Vector auto regression model further demonstrates this dynamic relationship, In the short term, inflation is slightly hinder economic growth, the long-term economic growth, indicating that C hina’s inflation rate has been in a relatively modest stage.(3)There is a significant threshold effect between inflation and economic growth. When the inflation rate at 6.65% or less, economic growth and inflation rates with changes in direction. When the inflation rate is above the threshold of inflation on economic growth, there is a significant impediment.