Output-inflation, output-unemployment and unemployment-inflation trade-offs

This study aims to investigate the interdependence between the three macroeconomic phenomena: inflation, output and unemployment in Libyan economy during the period 1962-2009. According to this we utilize three different models to estimate the relationship in the long and short run. The relationships estimate through Co-integration, VECM and GMM methods. We performed the break point test and estimated the long-run and short-run for 1962 to 2009 and 1973 to 2009 separately. In addition, to get the robustness of our results; first we estimate the long-run and short run relationship between selected variables by applying Johansen co-integration and VECM. Then we estimate the gap model for the same relationship by applying two different methods covering two different periods of time: OLS and GMM. Furthermore, the results of the long-run and short-run denote to the policymaker or monetary policy must pay attention to the strategy that showed by Okun’s law and Phillips curve