Journal of Economics and Business

ISSN 2615-3726 (Online)

ISSN 2621-5667 (Print)

Published: 03 July 2018

Impact of inflation on Unemployment in Sri Lanka: Perspective of Phillips Curve

Aruppillai Thayaparan, Muhandiram Mudiyanselage Namal Muhandiram

Vavuniya Campus, Sri Lanka

Download Full-Text Pdf

10.31014/aior.1992.01.02.20

Abstract

The aim of this study is to identify the impact of inflation on unemployment in Sri Lanka over the period 1990 - 2016 through the perspective of Phillips curve. For this purpose, the annual time series data for the above period were collected from central bank report in 2016. To achieve the objective, the inflation rate which represents by wage price index was considered as the dependent variable, and the unemployment rate was used as independent variable in the study. The collected data were analyzed using simple linear regression model and reciprocal model which represents the Phillips curve. Results of the coefficient of correlation in linear regression model suggest that inflation and unemployment have 87.5% of negative correlations among them while the model reveals that rate of inflation has a negative impact on unemployment in the country. Results of reciprocal model confirmed the concept of Phillips curve, and it has found that even if the unemployment rate increases indefinitely, the percentage decrease in wage price index floor will not be more than 12.23 percent per year and the results are statistically significant at 1% level. Also, the above model proves that Sri Lanka has attained a 20.8% of the natural growth rate of unemployment which is higher than under linear model while adjusted R2 is 0.93 in reciprocal model shows that compared to the linear model, the reciprocal model is the best-fitted one to measure the strength of the above two variables. Findings of the study may help the policymakers in formulating the policies to minimize the harmful consequences of inflation and level of unemployment in Sri Lanka.

References

Aslam, M. (2017). Nexus between unemployment and inflation in Sri Lanka. [Online] Available: .http://irmbrjournal.com/papers/1371452025.pdf.

Elvis Picardo, (2018), How Inflation and Unemployment Are Related, [Online] Available: https://www.investopedia.com/articles/markets/081515/how-inflation-and-unemployment-are-related.asp.

Fejzi Kolaneci, Brunilda Hoxhalli (2016), Statistical Analysis of the Relation Between Inflation and Unemployment in Democratic States Using Spearman’s ƍ Correlation Coefficient With Application in Albania. [Online] Available: http://www.davidpublisher.com/Public/uploads/Contribute/578de99eee80a.pdf.

Katria, S., Bhutto, N. A., Butt, F., Domki, A. A., & Khawaj, H. A (2011). Is There Any Trade-off between Inflation and Unemployment? The Case of SAARC Countries. Pakistan Journal of Commerce and Social science, 8(3), 867-886.

Kayode Bamidele Adebowale (2015). The Relationship between Inflation and Unemployment in Nigeria. [Online] Available: https://books.google.lk/books?id=xEAdevdEwTcC&pg=PR5&lpg=PR5&dq=The++factors+influencing+the+decision+to+cultivate+vegetable+crops+:+A+discriminant++analysis&source=bl&ots=9haSD_lIN9&sig=-PWwtqBo8VDte8yqLmebG3Hp_1M&hl=en&sa=X&ved=0ahUKEwj6pKP8s9TZAhUkTY8KHVdFBSwQ6AEIKjAA#v=onepage&q=The%20%20factors%20influencing%20the%20decision%20to%20cultivate%20vegetable%20crops%20%3A%20A%20discriminant%20%20analysis&f=false.

Sahu Kabita Kumari (2017). Phillips curve and inflation in India, Asian Journal of Research

                 in Banking and Finance, Vol.7, Issue 5.

Singh, D. (2016). Trade off between Inflation and Unemployment in the Short Run: A Case of the Indian Economy. International Finance and Banking, Vol. 3, No. 1,   77-96.

http://www.futureacademy.org.uk/files/images/upload/7_Beci2016.pdf

Umair, M., & Ullah, R. (2013). Impact of GDP and Inflation on Unemployment Rate: A Study of Pakistan Economy in 2000-2010. International Review of Management and Business Research, 2(2).

Mohammed Ziaul HaiderChampa Bati Dutta (2012), Inflation-Unemployment Trade-off: Evidence from Bangladesh Economy. [Online] Available: http://journals.sagepub.com/doi/abs/10.1177/2319510X120080030

About Us

The Asian Institute of Research is an online and open-access platform to publish recent research and articles of scholars worldwide. Founded in 2018 and based in Indonesia, the Institute serves as a platform for academics, educators, scholars, and students from Asia and around the world, to connect with one another. The Institute disseminates research that is proven or predicted to be of significant influence for the general public.

Stay Connected

  • Instagram - Black Circle
  • Facebook - Black Circle
  • LinkedIn - Black Circle

Contact Us

Please send all inquiries to the email:

editorial@asianinstituteofresearch.org

Business Address:

5th Floor, Kavling 507, Fajar Graha Pena Tower, Jl. Urip Sumohardjo No.20, Makassar, Indonesia 90234

Copyright © 2018 The Asian Institute of Research. All rights reserved