An Empirical Test for Natural Rate of Unemployment and Expectations Augmented Phillips Curve Hypothesis in Perspective of Chinese Economy

Abstract

This research study investigates the natural rate of unemployment and the Expectations Augmented Phillips Curve for Chinese economy by analyzing the data ranging from 1980 to 2020.  The empirical methodology of this study test the relationship between inflation rate and rate of unemployment which proved to be negatively significant (it proves the existence of classical Phillips Curve around 1960) in China. The study also analyzed the Expectations Augmented Phillips Curve allowing the effects of price expectations on money wages increases. Finally, the study also analyzed the natural rate of unemployment for China that was around 4.86 per cent that can be compared with the natural rate of unemployment (as prescribed by economists 4 to 5 per cent). The study suggests certain tools that will be helpful for policymakers in maintaining the conditions of stable inflation in China.