Abstract

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

Key words:trade openness;inflation;economic growth;economic risk