Abstract

China’s economic reform and opening-up policy has brought huge dividends, complicated the economic policy mechanism and transmission mechanism, and resulted in a certain amount of economic risk. In the framework of aggregate demand and aggregate supply analysis, the paper checks the correlation mechanism between foreign trade openness and AS-AD policy, and then analyzes the linkage and mechanism between trade openness and economic downside and deflation risk. The empirical results show that the higher the foreign trade openness is, the steeper the aggregate supply curve will be; the flatter the aggregate demand curve is, the higher the tradeoff between output and inflation will be, so the economic downside and deflation risk will be reduced, and the policymakers need to refrain from large-scale active monetary policy. In the circumstance of new normal economy and the slow decline of foreign trade openness, we should continue to implement the reform and opening-up policy, make efforts to expand the total supply, and stimulate the aggregate demand appropriately, to ensure the smooth and moderate operation of output and inflation.

Key words

Trade Openness; Inflation; Economic Growth; Economic Risk

         DOI: https://doi.org/10.13687/j.cnki.gjjmts.2016.01.003