An Empirical Analysis on China’s Long-Run Phillips Curve with Characteristics of Hyperbola

Abstract

By analyzing the history of traditional Phillips curves, this paper criticizes that the nonlinear characteristics have been ignored on the Phillips curve studies. Based on the Chinese annual data during 1979-2005, the paper does an empiricl analysis by creating a long-run Phillips curve. The paper leads with four results as follows: First, the long-run Phillips curve can be a special rational function with the characteristics of hyperbola. Second, the model can explain why the long-run Phillips curve may occupy a negative slope, positive slope or be a parele line, vertical line. Third, the paper finds that the China’s long-run Phillips curve fluctuates periodically aroud the coordinate in an anticlockwise direction. Final, the paper achieves that the threshold of China’s economic overheating at the point of the real GDP growth rate is 10.94% and the threshold of serious inflation at the point of cpi is 7.44%.