Inflation and unemployment relationship in Turkey: An examination on the validity of Phillips Curve (1988-2017)

Abstract

It makes important contributions to economics literature Phillips Curve explaining the interaction between rate of change in monetary wages and unemployment rate firstly appeared in 1958. It explains relationship between inflation rate and unemployment rate Phillips Curve which has been handled differently since and after 1960. This study aims to examine inflation-unemployment relationship and the validity of Phillips Curve in Turkey. In this context, the data set used for econometric application is annual and covers the period 1988-2017. Econometric methods are used as ordinary least squares estimation and Johansen cointegration test in the study. Ordinary least squares estimation method and Johansen cointegration test results indicate that there is a relationship between inflation and unemployment and Phillips Curve is valid in Turkey during the period 1988-2017. Johansen cointegration test results show that there is a long-run relationship such as unemployment rate, inflation rate, unit value index of export goods, unit value index of imported goods and broadly defined monetary growth variables. Thus, it is thought to be useful the Central Bank of the Republic of Turkey of the policies implementation taking into account the existence of this relationship between inflation and unemployment in the context of ensuring and sustaining price stability in the next process.