3. DATA AND METHODS
3.1. Data
The study is completely based on secondary data for the period of 1991 to 2016. The data on unemployment rate are compiled from World Bank. On the other hand data on inflation rate are collected from (http://www.inflation.eu/inflation-rates/india/inflation-india.aspx). The statistical software Eviews7 have used for statistical calculations. The detail descriptions of the variables are shown in table 1:
Table 1: Summary Statistics
Variables Description Mean (SD)
Inflation rate (INF) Inflation rate is defined as the annual percent change in consumer prices compared with the previous year's consumer prices 7.70 (3.19)
Unemployment rate (UNP) The unemployment rate is the percentage of the total workforce that is
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4. RESULTS
The objective of this study is to investigate the causality relationship between inflation and unemployment in India. For this purpose we have used the standard econometric model of granger causality. But, before estimating the granger causality we must have check the stationary property of the variables. This is because if the variables are non-stationary then, the granger causality test may give misleading results. To test the stationary property of variables, we have used Phillips and Perron (1988). The result of unit root test is shown the table 2:
Table 2: Phillips-Perron test for unit root
Variables Level 1st difference
Inflation rate (INF) -11.61 (P=0.18) -29.09*** (P=0.00)
Unemployment rate (UNP) -10.97 (P= 0.13) -32.03*** (P=0.00)
Source: author’s calculation; Note: *** represent the 1 percent level of significance.
The above table shows the result of Phillips-Perron test unit root test. It seen from the table that, the null hypothesis of unit roots is not rejected for both the variables i.e. inflation rate and unemployment rate. This indicates that both variables are not stationary at level. However, inflation rate and unemployment rate are found to stationary after first difference. Since the variables are stationary at first difference, they can be further tested for co-integration. We have used Johansen Co-integration Test to find the Co-integration.
Table 3: Johansen tests
The interest rates are expected to reach 7.0% by June, the most severally effected by these constant raises are shareholders. Because of these immediate effects market economists are largely against the interest rate hikes. Their position is that the average inflation rate over the past three years has been at around 2% close to the markets expected inflation rate of 1.9%. The economy is on a sixteen year run, continually moving forward. The historical data is there however; the consumer price index was at 1.6% over the past twelve months and the March year over year rate was at 3.7%
GDP trends with the economic growth. If the economy is booming and doing well then the GDP will increase (direct correlation). Unemployment is low whenever the GDP is slow. Currently, unemployment is pretty low. Inflation raises the price of goods and decrease the value of money. Inflation is the most important of the 3 to think about when planning financially. Inflation can result in higher mortage rates, rent, monthly payments, etc. Unemployment and GDP can also make an impact on what to financially plan for. If unemployment is high, it is a good idea to save up.
To avoid spurious results, unit root tests using Augmented Dickey-Fuller (ADF) (Dickey and Fuller, 1981) and Philips-Perron (PP) are performed to determine the time-series properties of the variables employed in the analysis. Two or more variables are said to be co-integrated when they exhibit long run equilibrium (relationship) if they share common trend(s).Therefore Auto-regressive distributed lag bounds approach (ARDL) is used to test it. The choice is based on several
1). In 2016, the inflation rate was at 2.07 percent, and as of February 2017 the rate is about .90 percent (“Inflation Rate,” n.d.). As we can see, the economy has bounced back from its position during the recession. GDP has increased drastically since 2009, unemployment has decreased past its position from 2007, the interest rate has risen, and inflation has also gone up which indicates a strong and healthy economy. Although a higher interest rate is unfavorable for consumers and businesses, it means that the government is confident that the economy will continue to improve. This also means that consumers have enough disposable income to spend on whatever they wish, so the government does not need to lower the rate in order to encourage borrowing and spending. These metrics indicate that the economy has recovered from the Great Recession, and is continuing to improve.
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A company with factories located in New York and Michigan produce yarn, using two different types of machines; JC980 and VH80. Each factory uses only one machine type. The sample size is at 1 391 factories.
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Also, this estimation allows the using of a lagged dependent variable to check whether there is a possible cointegration in the economic variables, with the possibility of one variable forecasting another (Campbell & Shiller, 1988). Including the lagged dependent variable can reduce the occurrence of autocorrelation arising
Additionally, I will also be testing for granger causality. In order to test for granger causality though we need to use variables which are stationary.
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In economics, inflation is a rise in the general level of prices of goods and services in an economy over a period of time. When the general price level rises, each unit of currency buys fewer goods and services. Consequently, inflation also reflects an erosion in the purchasing power of money – a loss of real value in the internal medium of exchange and unit of account in the economy A chief measure of price inflation is the inflation rate, the annualized percentage change in a general price index (normally the Consumer Price Index) over time.
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Discuss the role of government policy in reducing unemployment and inflation. In your discussion make use of the diagrammatic representation of the macroeconomy developed in lectures in Term 2
Malaysia’s Unemployment Rate since 2000 till present. Notice the peaks after an expansion and troughs after a recession. This graph also indicates the business cycle in Malaysia.