Dissertation on "Inflation Unemployment and Phillips Curve in China"

Dissertation 50 pages (14932 words) Sources: 40

[EXCERPT] . . . .

Inflation, Unemployment and Phillips Curve in China

Research particularities

Inflation, unemployment and their definitions

The problem of inflation

The definition of inflation

Measures of inflation

How inflation is measured

Global values of inflation

Types of inflation

Issues raised by inflation

The problem of unemployment

The definition of unemployment

Measures of unemployment

How unemployment is measured

Global values of inflation

Issues of unemployment

The Phillips curve

Defining the Phillips curve

The original Phillips curve

Mathematics behind the original Phillips curve

The modified Phillips curve

Mathematics behind the modified Phillips curve

Two Phillips curves

The Phillips curve in China

General information about China

People's Republic of China interest rates

Phillips curves in China

Relationship between inflation and unemployment in short-term and long-term

The real estate bubble in China

45

6.1. The situation

45

6.2. Possible reasons

46

6.3. Problems associated with the real estate bubble

47

6.4. Impact of the 2008 summer Olympics

49

6.5. Impacts on Chinese inflation

52

7. China's current real estate bubble and Japan's real estate market in 1985

54

8. Proposed remedies

59

8.1. Sustained investments in infrastructure and exports

59

8.2. Financial and legal restrictions

63

9. Conclusions

66

References

68

Annex 1

Annex 2

Annex 3

Annex 4

1. Introduction

China is globally recognized as the number one destination for outsourcing operations, mostly those of manufacturing and this situation has been created as a result of the impressive cost efficiencies offered by the cheap Chinese labor force. However, aside from being a primary destination where to outsource operations, China is a highly complex economic region. The country has for over two decades now fought to liberalize its market and economy and strives to become aligned with the more developed global nations.

But in spite of its tremendous efforts, China remains an emergent economy, which makes it more vulnerable to macro and micro economic changes. Two relevant examples of elements which impact the Chinese economy refer to inflation and unemployment. The relationship between these two forces is best revealed with the aid of the Phillips curve. The current research endeavor then focuses on the assessment of the Chinese economy through the lenses of inflation and unemployment and their integration in the Phillips curve.

In order to attain the mentioned objective, several gradual stages are completed. The first of them is represented by the research conducted in an effort to offer a detailed and thorough comprehension of the concepts -- inflation, unemployment and the Phillips curve. The trends are then analyzed, graphically represented and discussed. Following these efforts, the research endeavor focuses on other issues as they relate to the research topic, such as the real estate bubble in China and its comparison to the 1985 real estate market in Japan. The most constructive outcome of the process is represented by the issuing of several recommendations as customized remedies to be implemented by the People's Bank of China in order to more efficiently address the real estate bubble.

2. Research particularities

2.1. Research objective

The main objective of the current research endeavor is that of revealing the nature of the relationship between inflation and unemployment in China. In order to attain this scope, emphasis would be placed on the Phillips curves.

Aside from the primary goal, the current research endeavor also seeks to assess the issues related to the real estate bubble in China. Finally, it aims to use the information gathered and construct relevant recommendations to addressing the problems of the real estate bubble.

2.2. Research questions

The current research endeavor is structured in a manner in which it supports the finding of answers to the following research questions:

1. Is there a negative relationship between inflation and unemployment in China, in the short-term?

2. Did the Summer Olympic Games of 2008 generate an impact on real estate pricing in China?

3. How can the Chinese Bank regulate the soaring of real estate prices in China?

4. Is it necessary to establish further rates by the People's Bank of China in order to regulate the real estate prices in the country?

2.3. Research methodology

The research methodology represents the totality of endeavors which would be completed in order to collect the necessary information and provide answers to the previously posed questions. The research methodology can be identified at six specific levels:

The research philosophy

The research approaches

The research strategies

The research choices

The time horizons and The techniques and procedures.

The six stages of the research methodology are commonly known as a research onion and the analogy with the vegetable is given by the necessity of the researcher to complete one process before moving on to the other. The selection of a specific research tool is pegged to particular research complexities and it cannot be argued that one choice is wrong and the other is right, as they are customized to research particularities. In other words, in order to identify the research approach, it is first necessary to decide upon the research philosophy. In essence, in order to decide upon the research techniques and procedures, it is first necessary to decide upon the philosophy, the approaches, the strategies, the choices and the time horizons -- in this order.

The research philosophy can either be positivist or phenomenological. The positivist research philosophy sees that the researcher maintains an objective stand and realistically gathers and assesses the information required. The phenomenological philosophy argues that the situations researched are far too complex to be understood through the limited lenses of positivism and that each researched situation is extremely complicated. In light of the research need of creating a verified and sound finding, the research philosophy selected is the positivist one.

The research approaches can be divided into two categories -- inductive and deductive. The inductive research approach sees that the researcher observes the phenomena and creates observations based on which a final conclusion / theory is formed. In terms of the deductive approach nevertheless, the researcher initially launches a theory / hypothesis and constructs the research effort in order to prove or disprove the respective theory. For the purposes of the current research, the inductive theory was selected.

At the level of the research strategies, these refer to the means employed in the collection of the actual information. Among the most popular mechanisms are: the experiment, the survey, the case study, the action research, the grounded theory, or archival research.

Based on the particularities of the current research endeavor, the case study was selected as the most relevant means of data collection. The usage of the case study is characterized by the fact that the researcher assesses various sources of information and collects, analyses and presents them in a means in which it supports the answering of the pre-posed research questions. Susan K. Say at the University of Texas at Austin states that the case study is highly useful in empirically assessing contemporaneous issues within their real life context.

"Case study research excels at bringing us to an understanding of a complex issue or object and can extend experience or add strength to what is already known through previous research. Case studies emphasize detailed contextual analysis of a limited number of events or conditions and their relationships."

The research choice refers to the selection of one or more strategies. This study retrieves its findings through a mono-method choice, or the use of a single research strategy. Then, at the level of the time horizons, these can be either longitudinal, or cross sectional. The longitudinal study spreads throughout an increased time period and assesses the evolution of the phenomenon. The cross-sectional time horizon sees that the research endeavor focuses on various topics of the phenomenon and assesses their current state.

The research project at hand uses a combination of longitudinal and cross-sectional time horizons. Longitudinal elements are observed in the historic observation of the Phillips curve in China as well as the Japanese real estate situation in 1985, whereas cross-sectional analyses are used in the analysis of the contemporaneous issues of inflation, unemployment and the real estate bubble.

Finally, at the level of the techniques and procedures, these are generically organized into two categories -- qualitative and quantitative. The current study uses mostly qualitative tools, but also integrates quantitative elements. Qualitative study is characterized by the analysis of phenomenon specific issues at in depth levels, but also by the inability to extrapolate the findings. Quantitative research on the other hand is more complex and tedious, but it is constructed on facts and numeric information, which lead to results than can be extrapolated. The combination of the two methods -- also used in this effort -- is common within the research community and is entitled triangulation.

2.4. Significance of the research

The current research endeavor plays a dual role. On the one hand, it gathers and centralizes information on the topic introduced. It as such creates a new source of information for those interested in the Chinese economy, with emphasis on the Phillips curve and the real estate bubble. On… READ MORE

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