The Relationship between Inflation and Economic Growth of China: Empirical Study from 1978 to 2007

Abstract: This thesis is to research the relationship between inflation and economic growth of China from 1978 to 2007. No unambiguous conclusions on this problems have been obtained from previous literatures. This thesis will employ co-integration and error correction models accompanying with correlation matrix and the Granger Causality Test to examine the inflation-economic growth relationship. The data is annual time series from 1978 to 2007 of China. The results show that in the long run inflation positively relate to economic growth in bi-direction. China would pay attention to price level when develops economy. Besides, high speed increase of investment would cause inflation in the short run.