Empirical Research On Inflation-Output Relationship In China

Inflation and output are the two eternal themes in the macroeconomics,and the relationship between inflation and output largely influences the central bank's decision on monetary policy.In September 2007,the global financial crisis triggered by the US subprime crisis brought an unprecedented shock to the economies of the world.For a long time before the crisis,the global economy was generally in a state of “The Great Moderation” with high growth and low inflation.Many scholars put forward the view that “the relationship between inflation and output has changed”.Since the crisis,under the influence of the ultra-conventional monetary policy of the central banks in all major countries around the world,the inflation-output relationship of countries have also quietly changed.Many empirical studies have shown that the Phillips curve of industrialized countries has been flattened.That is to say,the stable relationship between inflation and output represented by the traditional Phillips curve in the post-crisis era no longer exists.This “flattening of the Phillips curve” has brought new challenges to monetary policy decisions.Similar to the industrialized countries,the Phillips curve also flattened in China.Therefore,it is particularly important to explore China's inflation-output relationship and its dynamic changes.This not only has theoretical significance for enriching China's monetary policy stabilization framework,but also helps the central bank to develop a forward-looking,consistent and sustainable monetary policy.On the basis of literature research,this paper first tries to explain the theoretical basis of the inflation-output relationship.Secondly,it discusses the changing trend of its relationship based on the global and Chinese perspectives.Then,we use the macroeconomic data of China since 2000,and use the least square regression analysis method to carry out empirical research.Finally,we summarize the empirical results,and propose the implications and suggestions for China's monetary policy choices.The main findings of this paper are as follows:(1)Since 2000,China's inflation and output growth have shown a trend of change in the same direction,which is in line with the conclusions of most scholars on the relationship between inflation and output.(2)The sensitivity of China's inflation to output gaps has changed.In particular after the crisis,the sensitivity of China's inflation to output gap has decreased in recent years.This means that in order to curb China's inflation,it is necessary to implement a more permanent monetary contraction policy,which will inevitably lead to greater output sacrifice.