RELATIONSHIP BETWEEN INFLATION AND UNEMPLOYMENT: TESTING THE APPLICABILITY OF PHILIPS CURVE TO NIGERIA

Abstract

This paper attempted an empirical validation ofthe Phillips curve hypothesis (inflation and unemployment trade-off) applicability in Nigeria from 1991 to 2021.The study sourced its data from the World Bank, andNational Bureau of Statistic (NBS).the study first, examines the stochastic properties of the variables through Augmented Dickey Fuller (ADF) test, and the result reveals that inflation rate, unemployment rate and gross domestic product data series are stationary at first difference, heteroskedasticity test through Breusch-Pagan-Godfrey and Serial Correlation throughBreusch-Godfrey LM Test were performed, which find the data set to be free from heteroskedasticity and  serial correlation, also the long run relationship between the variables has been examined through regression model (OLS). The result of the model reveals that inflation rate is statistically significant in explaining unemployment, this implies thatthat there is a trade-off relationship between the variables, which confirms the validity of the Phillips curve hypothesis for the Nigerian economy within the timeframe of 1991 to 2021. It’s therefore recommended that the Nigerian economy adopt a policy-mix which will maximize employment of labour, while creating cushions for inflationary trends.Given that a negative relationship exist between the variables.