Summary:
During the post-epidemic period, China's economic recovery has faced difficulties associated with persistently weakening long-term demand. This unusual divergence of trends suggests that the Phillips curve in China may have inverted, evolving into a left-skewed, upward-sloping curve. An inverted Phillips curve is an alarming economic signal of unsteadiness in the state of constant output growth and price deflation. Specifically, means that the output-inflation combination will eventually shift from the lower right to the upper left along the inverted Phillips curve when the economy realizes a bottom equilibrium of low output and high inflation. This scenario is similar to the eve of “stagflation” in the United States. Hence, China's economic recovery continues to face several potential risks; accordingly, demand management and inflation governance are now the core tasks needed to maintain stable growth and guard against risks. This paper comprehensively and mechanistically analyzes how weak economic recovery occurs during the post-epidemic period and discusses in depth how a classical economic crisis can be prevented ex ante and the appropriate guidance for economic recovery. The major conclusions are summarized as follows. First, the fundamental causes of the inversion of China's Phillips curve are constant demand contraction and inner rotation verticalization of the supply curve. Second, this paper proposes the principle of output-inflation spatial re-segmentation, in which the traditional two-dimensional space of output-inflation is re-segmented using the slope of the Phillips curve to identify the safe, crisis and early warning zones of economic operation. It shows that the Chinese economy is yet to completely escape the warning zone. Policy instruments are needed to guide the economy rapidly into the safe zone. Third, this paper proposes a new principle of Phillips curve set research. Taking a combination of loci in the y-p two-dimensional rectangular coordinate system as a benchmark, feasible empirical solutions are planned for all curve patterns based on historical combinations of output-inflation; this can serve as a reference for policy authorities when scheduling economic recovery paths. With reference to historical base effects, in the short term, medium-high to moderately high growth and appropriately weak inflation are the optimal targets for economic recovery, and 0.70 is the optimal solution for the Phillips curve slope. Fourth, this paper thoroughly compares the real-time corrective effects of various macroeconomic policy instruments and combinations on the curve slope. The policy combination that involves both expansion of the scale of social financing and tax cuts is found to be the best option to guide economic recovery. The policy implications of this paper are summarized as follows. First, in terms of economic monitoring, policy authorities should focus on the degree of matching between output growth and inflation, as well as the unilateral risk of output or inflation. Second, in terms of guidance for economic recovery, future macro-governance efforts should focus on the coordination of fiscal and monetary policies. It is necessary to properly apply new forms of fiscal policies, such as structural tax cuts, and strengthen the appropriate support given to fiscal policies on consumption to enable the economy to eliminate deflation risk as soon as possible. It is also necessary to strengthen the supportive role of monetary policy for the real economy. Third, future macroeconomic research must focus on theoretical and empirical analysis of crisis economics, especially the ex-ante warning and prevention of a recurring classical economic crisis.
刘达禹, 徐斌, 宋洋. 菲利普斯曲线“逆位反转”的机理阐释与政策合力下的经济复苏路径重塑[J]. 金融研究, 2024, 524(2): 1-18.
LIU Dayu, XU Bin, SONG Yang. Mechanism Analysis of an Inverted Phillips Curve and Reshaping the Economic Recovery Path under Policy Coordination. Journal of Financial Research, 2024, 524(2): 1-18.
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