An Empirical Analysis on the Chinese Long-Run Accumulative Phillips Curve During the Period of 1979-2008

Abstract

By analyzing the history of traditional Phillips curves, this paper criticizes that the prior studies of Phillips curve have ignored the accumulative effect of economic growth and inflation on a particular economy. By doing an empirical analysis on Chinese economy during 1979-2008, this paper has got three results: Firstly, it defines a variable of ideal real GDP growth rate and a variable of ideal CPI. When considering the accumulative effects of the economic growth rate and inflation rate, it approves that the accumulative ideal real GDP growth rate can be used as the ideal potential accumulative real GDP growth rate, and the accumulative ideal CPI can be used as the ideal natural accumulative CPI. Secondly, it constructs an accumulative Phillips curve. When considering the cross accumulative effects, it approves that the accumulative Phillips curve is good fitted to the relation between the accumulative real GDP growth rate and accumulative inflation rate. Finally, it creates a prediction mechanism. When comparing the prediction results of four models, it approves that the Chinese real GDP growth rate will be about 7.15% in 2009 and 9.59% in 2010, and the Chinese CPI will be about -1.40% in 2009 and -8.55% in 2010.