Testing the Validity of the Inflation-Unemployment Nexus within the West African Monetary Zone

Effiong, Ubong Edem and Akpan, Ekomabasi and Ekpe, John Polycarp (2022): Testing the Validity of the Inflation-Unemployment Nexus within the West African Monetary Zone. Published in: Traektoriâ Nauki (Path of Science) , Vol. 8, No. 8 (31 August 2022): pp. 1011-1026.

Abstract

This study aimed to ascertain the validity of the Phillips Curve in six countries of Gambia, Ghana, Guinea, Liberia, Nigeria, and Sierra Leone within the West African Monetary Zone (WAMZ). The study utilised panel data from these countries varying from 2000 to 2021, which were obtained from the World Bank database. The data were analysed using the Panel unit root test, Johansen Fisher Panel (JFP) co-integration test, Pairwise Dumitrescu Hurlin Panel (PDHP) Causality Tests, and the Panel Autoregressive Distributed Lag (ARDL) approach. The PDHP Causality Test revealed a one-way causality from unemployment to inflation; hence, unemployment causes inflation. The JFP co-integration test conducted since the variables were not all stationary at levels revealed that the two variables are cointegrated, which portrayed some degree of long-run relationship. The significant findings of this study, as presented by the panel ARDL result, indicated that the inverse relationship between inflation and unemployment is only valid in the short run within the WAMZ. This finding supports the argument that there is no trade-off between inflation and unemployment in the long run and the Phillips Curve is a vertical line at the natural unemployment rate.

• Item Type: MPRA Paper
• Language: English
• Keywords: Phillips Curve; Natural Rate of Unemployment; Inflation; Monetary Policy; Labour Market.
• Subjects: E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy > E24 - Employment ; Unemployment ; Wages ; Intergenerational Income Distribution ; Aggregate Human Capital ; Aggregate Labor Productivity; E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E31 - Price Level ; Inflation ; Deflation; E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E52 - Monetary Policy

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