The Relationship between Inflation and Unemployment: An Empirical Study

Abstract

This study examines the relationship between inflation and unemployment through an empirical analysis grounded in macroeconomic theory, particularly the Phillips Curve framework. The research aims to determine whether a trade-off between inflation and unemployment exists in the selected economy during the study period. Using time-series data collected from official national and international economic databases, the study applies econometric techniques such as unit root testing, cointegration analysis, and regression modeling to evaluate both short-run and long-run dynamics. The findings indicate that inflation and unemployment exhibit a statistically significant relationship, although the direction and strength of the relationship vary across different time periods due to structural economic changes, policy interventions, and external shocks. In the short run, evidence supports the existence of a trade-off, where rising inflation is associated with lower unemployment. However, long-run results suggest that the relationship weakens, implying that inflation may not sustainably reduce unemployment over time. The study concludes that policymakers should adopt balanced monetary and labor market policies to control inflation without increasing unemployment levels. The research contributes to economic policy discussions by providing updated empirical evidence on the inflation–unemployment nexus and highlighting the importance of considering economic stability and structural reforms in policy formulation.