The Existence Of Trade Off Relationship Between Inflation Rate And Unemployment

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Abstract

The main aim of this study is to investigate the existence of trade-off relationship between inflation rate and unemployment rate in Namibian economy between 1991 and 2014 the perspective of Phillips curve by using the Ordinal Least Square (OLS) method. The results of Augmented Dickey-Fuller test shows that all variables are stationary at level and the integration test shows that they integrated at level I(0). The analysis result shows the negative relationship between inflation rate and unemployment rate in short-run as it was expected. But, in the long run the estimated results shows a positive relationship between inflation rate and unemployment rate in Namibia which is consistent with “Lucas Critique” where inflation policy
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Chapter one
Introduction

For years now economist have been debating about inflation and unemployment whether it is possible to achieve both of this main macroeconomic goals , which is low inflation and low unemployment in the economy at the same time without harming the economy. In this case it remains one of the challenge that face most of developing countries that include Namibia, to sustain the low inflation and low unemployment rate. Philips curve was emerged in 1960 in United Kingdom, was named after A. W. Philips the founder of Philips curve. Philips curve suggested that there is inverse relationship between inflation and unemployment and there are three assumptions of Philips curve: the first one is that in the short run there is trade-off between unemployment and inflation. The second assumption is that aggregate supply can break the concept of Philips curve because it can cause the stagnation that is high unemployment and high inflation. And the final assumption is that in the long-run there is no significant trade-off between unemployment and inflation. The economist like (McConnell 16th edition) has best interest to identify their relationship; in the short run there is trade-off between unemployment and inflation. In this view different studies in different countries have found out
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