Citation:

Ali Irushad. "The Relationship between Unemployment and Inflation in Maldives: Does Phillips Curve Exist?" International Research Journal of Economics and Management Studies, Vol. 2, No. 3, pp. 574-582, 2023.

Abstract:

Using quarterly data, the primary goal of this study is to investigate the existence and stability of the Phillips curve in the instance of the Maldives from Q1 1991 to Q4 2014. The study's variables include the GDP, the unemployment rate, and the rate of inflation. The ADF unit root test is utilised, and it is discovered that all variables are integrated to order I (1). We investigate the long-term relationship between the variables using the bound testing technique to long-run cointegration within the ARDL framework. In addition, we analyse the short-run dynamic relationship between variables using the Error Correction Model (ECM). We discovered the presence of a long-term link between inflation, unemployment, and gross domestic product using this method. In the Maldives, there is a significant and long-term negative association between inflation and the unemployment rate. We run recursive residual, CUSUM, and CUSUMsq tests to determine the model's stability, and the results show that the Philips curve connection in the Maldives is stable.

References:

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[2] Bhattarai, K. (2016). Unemployment–inflation trade-offs in OECD countries. Elsevier, 58, 93–103. http://doi.org/10.1016/j.econmod.2016.05.007
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[5] Fuhrer, J. C. (1995). The Phillips Curve Is Alive and Well. New England Economic Review of the Federal Reserve Bank of Boston, March/Apri, 41–56.
[6] Furuoka, F., & Munir, Q. (2014). Unemployment and Inflation in Malaysia: Evidence from Error Correction Model. Malaysian Journal of Business and Economics, 1(1), 35–45.
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[11] Haug, A. A., & King, I. (2014). In the long run, US unemployment follows inflation like a faithful dog. Journal of Macroeconomics, 41, 42–52. http://doi.org/10.1016/j.jmacro.2014.04.003
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[20] Najid Ahmed, Kausar Yasmeen, A. A. (2013). Inflation and Unemployment: Is the Trade-off Dead or Alive in Pakistan? Pensee Journal, 75(11).
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[22] Ojapinwa, T. V., & Esan, F. (2013). Does Philips Relations Really Exist in Nigeria? Empirical Evidence. International Journal of Economics and Finance, 5(9), 123–133. http://doi.org/10.5539/ijef.v5n9p123
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[28] Phelps, E. S. (1967). Phillips Curves, Expectations of Inflation and Optimal Unemployment over Time. Economica, 34(135), 254–281. http://doi.org/10.2307/2552025
[29] Phillips, A. W. (1958). The Relation between Unemployment and the Rate of Change of Money Wage Rates in the United Kingdom, 1861-1957. Economica, 25(100), 283–299. http://doi.org/10.2307/2550759
[30] Ray, L. (2012). Estimation of Phillips Curve in Indian Context. International Journal of Economics and Research, 3(2), 28–51.
[31] Reichel, R. (2004). ON THE DEATH OF THE PHILLIPS CURVE: FURTHER EVIDENCE. Cato Journal, 24(3). http://doi.org/10.1525/sp.2007.54.1.23.
[32] Shahbaz, M., & Islam, F. (2011). Financial Development and Income Inequality in Pakistan: An Application of ARDL Approach. Journal of Economic Development, 36(1), 35–57. http://doi.org/http://www.jed.or.kr/archives.html
[33] Singh, D., & Verma, N. (2016). Tradeoff between Inflation and Unemployment in the Short Run: A Case of the Indian Economy. International Finance and Banking, 3(1), 77. http://doi.org/10.5296/ifb.v3i1.9378
[34] Sleeman, a. G. (2011). Retrospectives: The Phillips Curve: A Rushed Job? Journal of Economic Perspectives, 25(1), 223–238. http://doi.org/10.1257/jep.25.1.223
[35] Tang, C. F., & Lean, H. H. (2007). Is the Phillips curve stable for Malaysia? New empirical evidence. Malaysian Journal of Economic Studies, 44(2), 95– 105.
[36] Touny, M. A. (2013). Investigate the Long-Run Trade-Off between Inflation and Unemployment in Egypt. International Journal of Economics and Finance, 5(7), 115–125. http://doi.org/10.5539/ijef.v5n7p115
[37] Al-zeaud, H., & Al-hosban, S. (2015). Does Phillips Curve Really Exist? an Empirical Evidence From Jordan. European Scientific Journal, 11(10), 253– 275.
[38] Bhattarai, K. (2016). Unemployment–inflation trade-offs in OECD countries. Elsevier, 58, 93–103. http://doi.org/10.1016/j.econmod.2016.05.007
[39] Brechling, F. (2016). The Trade-Off between Inflation and Unemployment. Journal of Political Economy, 76(4), 712–737.
[40] Friedman, M. (1968). The role of Monetary policy. The American Economic Review, 58(March), 269–295. http://doi.org/10.1126/science.151.3712.867-a
[41] Fuhrer, J. C. (1995). The Phillips Curve Is Alive and Well. New England Economic Review of the Federal Reserve Bank of Boston, March/Apri, 41–56.
[42] Furuoka, F., & Munir, Q. (2014). Unemployment and Inflation in Malaysia : Evidence from Error Correction Model. Malaysian Journal of Business and Economics, 1(1), 35–45.
[43] Gordon, R. J. (1970). Prices in 1970: the horizontal Phillips curve. Brookings Papers on Economic Activities, 3, 449–458.
[44] Haq, I. U., Khan, S., Khan, A., & Ahmed, E. (2012). Phillips Curve or Locus Critique: Time Series Evidence from Pakistan, 4(4), 190–193.
[45] Hasan, M. A. (1988). Is there a phillips curve in Pakistan? The Pakistan Development Review, XXVII(4).
[46] Hasan, M. A. (1990). Phillips Curve Analysis: Some Experiences from Pakistan ’ s Economy. Journal of Economic Studies, 17(1).
[47] Haug, A. A., & King, I. (2014). In the long run, US unemployment follows inflation like a faithful dog. Journal of Macroeconomics, 41, 42–52. http://doi.org/10.1016/j.jmacro.2014.04.003
[48] Khalid Zaman, Muhammad Mushtaq Khan, Mehboob AHmed, W. I. (2011). Inflation , Unemployment and the NAIRU in Pakistan ( 1975-2009 ). International Journal of Economics and Finance, 3(1), 245–254.
[49] Leijonhufvud, A. (1968). Comment : Is There a Meaningful Trade-off between Inflation and Unemployment? Journal of Political Economy, 76(4), 738– 743.
[50] Lipsey, R. G. (1960). The Relation between Unemployment and the Rate of Change of Money Wage Rates in the United Kingdom, 1861-1957. Economica, 27(105), 1–31. http://doi.org/10.2307/2550759
[51] Lucas, R. (1976). Economic Policy Evaluation: A Critique. In The Phillips Curve and Labor Markets. In A. H. M. k. Burnner (Ed.), (pp. 19–46). Supplement to the Journal of Monetary. http://doi.org/http://dx.doi.org/10.1016/S0167-2231(76)80003-6
[52] Marina J. Malinov, P. M. S. (1997). A New Line on the Phillips Curve. Social Science Quarterly, 78(3), 740–746.
[53] Mazumder, S. (2011). The stability of the Phillips curve in India: Does the Lucas critique apply? Journal of Asian Economics, 22(6), 528–539. http://doi.org/10.1016/j.asieco.2011.05.002
[54] Mohseni, M., & Jouzaryan, F. (2016). Examining the Effects of Inflation and Unemployment on Economic Growth in Iran (1996-2012). Procedia Economics and Finance, 36(16), 381–389. http://doi.org/10.1016/S2212-5671(16)30050-8
[55] Naghdi, Y., Kaghazian, S., & Ghavidel, S. (2011). The Stability of Phillips Curve in Iran : Rolling Regression Analysis. Australian Journal of Basic and Applied Sciences, 5(12), 1398–1401.
[56] Najid Ahmed, Kausar Yasmeen, A. A. (2013). Inflation and Unemployment: Is the Trade-off Dead or Alive in Pakistan? Pensee Journal, 75(11).
[57] Niskanen, W. A. (2002). ON THE DEATH OF THE PHILLIPS CURVE. Cato Journal, 22(2). http://doi.org/10.1525/sp.2007.54.1.23.
[58] Ojapinwa, T. V., & Esan, F. (2013). Does Philips Relations Really Exist in Nigeria? Empirical Evidence. International Journal of Economics and Finance, 5(9), 123–133. http://doi.org/10.5539/ijef.v5n9p123
[59] Ormerod, P., Rosewell, B., & Phelps, P. (2009). Inflation/Unemployment Regimes and the Instability of the Phillips Curve. Economics. http://doi.org/10.1080/00036846.2011.628299
[60] Paul A Samuelson, R. M. S. (1960). Analytical Aspect of Anti-Inflation Policy. The American Economic Review, 50(2), 177– 194.
[61] Paul, B. P. (2009). In search of the Phillips curve for India. Journal of Asian Economics, 20(4), 479–488. http://doi.org/10.1016/j.asieco.2009.04.007
[62] Pesaran, M., & Shin, Y. (1999). Pesaran, M. H., & Shin, Y. (1998). An autoregressive distributed-lag modelling approach to cointegration analysis. Econometric Society Monographs, 31(7), 371–413. http://doi.org/10.1017/CCOL521633230
[63] Pesaran, M., Shin, Y., & Smith, R. (2001). BOUNDS TESTING APPROACHES TO THE ANALYSIS. Journal of Applied Econometrics, 326(February 1999), 289–326. http://doi.org/10.1002/jae.616
[64] Phelps, E. S. (1967). Phillips Curves, Expectations of Inflation and Optimal Unemployment over Time. Economica, 34(135), 254–281. http://doi.org/10.2307/2552025
[65] Phillips, A. W. (1958). The Relation between Unemployment and the Rate of Change of Money Wage Rates in the United Kingdom, 1861-1957. Economica, 25(100), 283–299. http://doi.org/10.2307/2550759
[66] Ray, L. (2012). Estimation of Phillips Curve in Indian Context. International Journal of Economics and Research, 3(2), 28–51.
[67] Reichel, R. (2004). ON THE DEATH OF THE PHILLIPS CURVE: FURTHER EVIDENCE. Cato Journal, 24(3). http://doi.org/10.1525/sp.2007.54.1.23.
[68] Shahbaz, M., & Islam, F. (2011). Financial Development and Income Inequality in Pakistan: An Application of ARDL Approach. Journal of Economic Development, 36(1), 35–57. http://doi.org/http://www.jed.or.kr/archives.html
[69] Singh, D., & Verma, N. (2016). Tradeoff between Inflation and Unemployment in the Short Run: A Case of the Indian Economy. International Finance and Banking, 3(1), 77. http://doi.org/10.5296/ifb.v3i1.9378
[70] Sleeman, a. G. (2011). Retrospectives: The Phillips Curve: A Rushed Job? Journal of Economic Perspectives, 25(1), 223–238. http://doi.org/10.1257/jep.25.1.223
[71] Tang, C. F., & Lean, H. H. (2007). Is the Phillips curve stable for Malaysia? New empirical evidence. Malaysian Journal of Economic Studies, 44(2), 95– 105.
[72] Touny, M. A. (2013). Investigate the Long-Run Trade-Off between Inflation and Unemployment in Egypt. International Journal of Economics and Finance, 5(7), 115–125. http://doi.org/10.5539/ijef.v5n7p115

Keywords:

Maldives, Phillips Curve, Dynamic Model, Co-Integration, Ardl, Dols.