An empirical study on the determinants of the Phillips curve for South Africa

M.Comm.The aim of this dissertation is to undertake an empirical study of the determinants of the Phillips curve for South Africa (SA). The work will be concentrated on the relationship between inflation (or wage inflation) and unemployment in SA from 1980 to 1998 with a particular focus on the behaviour of the Non Accelerating Inflation Rate of Unemployment (NAIRU). Given the importance of the NAIRU in formulating monetary policy, it will be therfore be appropriate to analysed this parameter. The NAIRU tends to perform differently in the face of price and wage inflation and therefore it has been found wise to divide the model into two categories. Price/unemployment model. Wage/unemployment model. The first model will be referred to as the Price-Phillips curve where as the second will usually be referred to as the Wage-Phillips curve. Models of Price-Phillips curve and Wage-Phillips curve are valuable tools for policy makers for a number of different purposes. In its original form the wage (or price) — unemployment relationship presents politicians with a list of different trade — offs to choose between inflation and unemployment. The trade-off seems to suggest that policy makers could choose a specific inflation-unemployment combination by controlling aggregate demand. This clearly points out that the trade-off postulated in the Phillips curve can be an usefull tool for monetary policy