To reduce laborious tasks of the phase determination, our previous paper has proposed a method to derive phase reference for two-tone intermodulation distortion (IMD) measurement of a power amplifier (PA) by using small-signal S-parameters. Since the method is applicable to low output power level, this paper proposes an iterative process to extend the applicable power level up to 1-dB compression. The iterative process is based on extraction of linear response: the principle of the extraction is described theoretically by using an accurate model of the PA with memory effect. Measurement of two-tone IMD is made for a GaN FET PA. Validity of the iteration is confirmed as convergence of the extracted linear response to that given by the product of S₂₁ and input signal. Measured results also show validity of the physical model of the memory effect provided by Vuolevi et al. because beat frequency dependences of IMD's are accurately fitted by bias impedances at even order harmonics of envelope frequency. The PA is characterized by using measured results and the third and fifth order inverses of the PA are designed. Improvement of IMD is theoretically confirmed by using the inverses as predistorters.