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MODELING THE PHILLIPS CURVE IN CHINA: A NONLINEAR PERSPECTIVE

Published online by Cambridge University Press:  24 May 2016

Lingxiang Zhang
Lingxiang Zhang*
Affiliation:
Beijing Institute of Technology
*
Address correspondence to: Lingxiang Zhang, School of Management and Economics, Beijing Institute of Technology, Beijing, Haidian District 100081, People's Republic of China; e-mail: lingxiangzh@163.com.
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Abstract

This paper investigates the nonlinear dynamics of the inflation–output type of Phillips curve based on a multiple-regime smooth transition regression model using data from China. The empirical results indicate significant nonlinearities in China's Phillips curve. The relationship between inflation and output can be modeled by a four-regime smooth transition regression model in which the responses of inflation to output depend on both inflation and economic growth rates. The inflation–output type Phillips curve may be positively sloped, negatively sloped, or even vertical in the short term, depending on different business cycles. Furthermore, we analyze business cycle fluctuations based on the nonlinear Phillips curve, indicating a coexisting zone of stable inflation rate and rapid growth rate.

Keywords

Phillips CurveMultiple-Regime Smooth Transition Regression ModelBusiness Cycle
Type
Articles
Information
Macroeconomic Dynamics , Volume 21 , Issue 2 , March 2017 , pp. 439 - 461
Copyright
Copyright © Cambridge University Press 2016 

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Footnotes

This research was funded by grants of the National Social Science Fund of China (No.13CJY011), the National Natural Science Foundation of China (No. 71372015), and the National Natural Science Foundation of China (No. 71272060).

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