Title: Drawing on Phillips curve: does the inverse relation between inflation and unemployment persist in transitional economies

Authors: Mohammad Naim Azimi

Addresses: Department of Industrial Economics and Business Administration, Rana University, Kabul, 5225, Afghanistan

Abstract: The present study analyses the persistence of inverse relation between inflation and unemployment by considering the Phillips (1958) curve as the base of argument using a set of data relating to India covering the period from 1950M01 to 2015M03. I test this data on two specific motives: 1) whether the inverse theory applies in transitional economies; 2) whether the future periods of inflation and unemployment forecast correspond with the stated theory for which, the Pearson r correlation is applied on actual series of data and the result of which, shows a rather positive correlation between the phenomenon. Applying the ARFIMA as the base model to forecast the variables on a dynamic approach, it is found that there is a long run memory between the variables though, an inverse relationship between inflation and unemployment is documented throughout the forecast period. Of this, the Phillips curve theory can only be valid if the economic condition is stabled otherwise, dynamic and transitional economies have a revert behaviour against the stated theory.

Keywords: transition economies; ARFIMA; Pearson; forecasting; unemployment; inflation; Phillips curve; India; long run memory.

DOI: 10.1504/IJEA.2016.078313

International Journal of Economics and Accounting, 2016 Vol.7 No.2, pp.89 - 100

Available online: 10 Aug 2016 *

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