Modeling China´s Inflation: Linear versus Nonlinear Method

Inflation is one of the most important macroeconomic variables. However, the behavior of inflation is so complicated that both economists and statisticians have strived to model and forecast inflation for years. In this study, the linear AS-AD model and nonlinear artificial neural network (ANN) technique are both employed to have a better understanding of the inflation behavior in China from 1992 Q1 to 2010 Q1. Experimental results demonstrated the inflation model can be obtained via ANN technique with higher accuracy compared to AS-AD model.