Empirical Analysis on The Existence of The Phillips Curve

The Phillips curve shows the trade-off relationship between the inflation and unemployment rates. A rise in inflation due to the high economic growth, more jobs are available and therefore unemployment will fall. However, the existence of the Phillips curve in high-income countries has not been much discussed. Countries with high income should have low unemployment rate, suggesting a high inflation. However, some high-income countries, the United States in 1970s for example, could not avert stagflation whereby high unemployment rate and inflation occurred in the same time. This situation is contrary to the Phillips curve. Therefore, this study aims to investigate the existence of the Phillips curve in high-income countries for the period 1990-2014 using the panel data analysis. The most interesting finding of this study is the existence of a bidirectional relationship between unemployment rate and inflation rate in both long and short runs. Therefore, the governments should choose to stabilize inflation rate or reduce unemployment rat