Multivariate model-based gap measures and a new Phillips curve for China

This paper examines empirically the Phillips curve relationship for the Chinese economy. We use quarterly data that go back to 1978 and employ a multivariate rather than univariate method in the construction of gap measures for inflation, money and output jointly with reliable error bands. Our empirical results show that the inflation gap and the output gap fit a New Phillips curve very well. We also find some structural change in the inflation–output trade-off.