INFLATION AND UNEMPLOYMENT RELATIONSHIP IN TURKEY: AN EXAMINATION ON THE VALIDITY OF PHILLIPS CURVE (1988-2017)

Abstract

Phillips Curve which expresses interaction between change in monetary wages and unemployment rate, first appeared in 1958 and made significant contributions to economic literature. Phillips Curve, which has been discussed in a different way since and after 1960, expresses the mutual interaction between inflation rate and unemployment rate. This study aimed to examine the validity of Phillips curve in Turkey. For this purpose, data used in study is annual and covers the period 1988-2017. Ordinary least squares (OLS) estimation and Johansen (1988, 1991) cointegration test methods were used as econometric method in the study. Ordinary least squares (OLS) estimation method and Johansen (1988, 1991) cointegration test results indicated that the Phillips curve is valid in Turkey for the period 1988-2017. Unemployment rate and inflation rate variables were estimated as two independent variables by using ordinary least squares (OLS) estimation method. Johansen (1988, 1991) cointegration test results showed a long-run relationship between unemployment rate, inflation rate, export goods unit value index, import goods unit value index and broad-defined monetary growth variables. Thus, the Central Bank of Republic of Turkey (CBRT) to ensure price stability in the future and taking into account relationship between unemployment and inflation in the context of sustainable policies in question are considered to be beneficial execution.