The Time Variability Of Phillips Curve In China

Economic growth,price stability,full employment and balance of payments are the main objectives of macroeconomic policies.In macroeconomics,the Phillips Curve is an important tool for studying the relationship between unemployment and wages,unemployment and prices,as well as the relationship between output and prices.The Phillips curve is able to place inflation and economic cycle in the same period of analysis framework.Also,the Phillips curve provides an effective way for us to judge the current economic situation and provides reference and theoretical basis for the central government to make macroeconomic policy.Because the Phillips curve plays an very important role in macroeconomic research,many scholars have put forward their views and opinions on the Phillips curve.Their research is mainly focused on the development and evolution of the Phillips curve model;Phillips curve's applicability in China and the shape of the Phillips curve.What's more,when they study the Phillips curve,they usually assume that the economic environment is running smoothly.The constant coefficient model is used to fit the dynamic relationship between inflation and output gap.But the fixed coefficient assumption is not consistent with the real economy,and the model itself lacks dynamic properties.The real economic world is complex and changeable.The cyclical reversal of the economy and changes in the economic structure are likely to lead to structural changes in the reaction coefficients.In order to overcome the defects of fixed coefficient model,and describe the dynamic relationship between inflation and output gap in a beter way,we will use the nonlinear smooth transition model,then we will use "the STR model" as its abbreviated form of name to describe the Chinese Phillips curve.We will use datas between the first quarter of 2001 to the second quarter of 2017 as the basis of the research,the consumer price index,real output,foreign exchange reserves and reserve currency will be used as the original data,we will make use of some ways to get the time series data of the inflation rate,expected inflation rate,the output gap and foreign exchange/base money.In detail,the inflation rate is caculated by using the CPI ring ratio rather than the ratio of year-on-year.The key to calculating the output gap is to estimate the potential output.The HP filter method is used to estimate the potential output value,and the output gap is determined by the formula of the relative output gap.According to the theoretical analysis,as well as the fundamental changes in China's inflation mechanism and the great changes in the economic environment,China's Phillips curve maybe has some turning points,the model may be has time-varying characteristics.Therefore,we can draw a preliminary conclusion:Chinese Phillips curve is likely to be changed in slope,In order to make sure that our conjecture is correct,tthe STR model is used for further verification and analysis.The results show that the LSTR1 model can well fit the Chinese economy and is superior to the linear model.The prediction of the Phillips curve with time variability in China has been finally proved.This paper is divided into five parts,the main content and structure are as follows:the first part is the introduction.This paper introduces the background and significance of the study;then we make some review and commentary on the existing literature at home and abroad,the domestic literature review mainly starts from two aspects:study on applicability of Phillips curve in China and the morphological characteristics of the Phillips curve;we make a list of research ideas and research methods,point out the innovation and shortcomings of this thesis.In the second part,we study the Phillips curve from the theoretical level,we have to ackonwledge that the economic environment in China has undergone profound changes,so the traditional model with constant coefficients has been unable to fit the China economy,we have reason to believe that the Phillips curve in China is variable coefficient.The third part is the selection of variables and data validation.In this part,we introduce the selection of inflation index,inflation rate,output gap and foreign exchange/base money,and we give a descriptive statistical analysis of these indexes.The fourth part is the model construction and fitting of time-varing Phillips curve.This chapter briefly introduces the STR model and its construction method,then based on the LSTR1 model,we constructe a China Phillips curve,the result has proved the hypothesis that Phillips curve in China has time-varying characteristics,then we give some explanation based on the result.The fifth part is the conclusion of the paper and policy recommendations.The study results indicate that the relationship between inflation and output in China is not linear,the slope of the Phillips curve will change with the change of economy and people's expectation,the Phillips curve in China has the typical characteristics of time-varying.At the same time,inflation expectations have significant impact on inflation;the impact of output gap and foreign exchange/base money on inflation is obvious nonlinear,but the overall direction is both positive.Then,according to the conclusion of this paper,we put forward some policy suggestions.