– The purpose of this paper is to find alternative strategies to change negative output gaps in China.
– A path Philips curves approach is proposed to investigate output gaps, which develops hybrid Philips curves with the control variables of money, house prices and interest rates.
– An alternative strategy to stop the decline in output gaps rate is to perform interest rate, house price, and money growth rate about 3, 1 and 15 percent, respectively. The results also indicate that only one of monetary increase, changes in interest rates, and house price adjustments are difficult to change the negative output gap.
– Alternative strategies cannot only change the negative output gap, but also succeed in pushing the inflation rate down to 3 percent.
– This study provides a new path Philips curves to simulate how the macroscopic control variables influence output and inflation. It provides a useful insight for stopping the decline in output gaps.
