Inflation-Growth Nexus and Phillips Curve: Empirical Analysis for Pakistan

Abstract

The topic Inflation-Growth Nexus and Phillip's Curve: Empirical Analysis for Pakistan highlights the link between inflation and growth about other independent factors. The literature review looks at studies and research on inflation-growth, the Phillips curve, and unemployment. The study's research gap is up-to-date data and more independent variables that have significant effects on inflation. Among the most important goals for every economy is to maintain rapid economic growth. There is a debate in the literature on whether growth causes inflation or whether growth does not cause inflation. Despite the fact that there are many major factors influencing inflation in an economy, this study investigates the relationship between inflation and unemployment in the context of the Pakistani economy. Annual statistics for the years 1990-2020 are used. Descriptive statistics, ARDL, correlation coefficient, covariance and regression have been used to find the results. According to the study's findings, inflation in Pakistan is negatively associated to unemployment and vice versa. The finding indicates that if growth increases, inflation will fall, demonstrating that there is a nexus between inflation and growth. In Pakistan, it’s not causing demand-side inflation. The literature review and empirical data are, indicating that Phillips curve forecasts doesn’t existences in Pakistan. In general, analysis have discovered by using that when the unemployment level falls below a specific threshold, known as the natural rate, inflation rises and continues to grow until the unemployment level recovers to its natural level. However, more study analysis and investigation are required to get a clear picture.