Testing the Validity of Philips Curve in Nigeria

Abstract The study tested for the validity of Philips curve in Nigeria. The study utilizes time series data covering the periods between 1986 and 2021. Prior to the estimation procedures, the stochastic properties of the time series data were examined using Augmented Dickey Fuller (ADF) and Philip-Perron (PP). The results of the time series properties indicate that the variables are combination of both I(0) and I(1) in the same specification which prompt the use of autoregressive distributive lags (ARDL) developed by Pesaran et al (2001). In addition, granger causality was performed to test for causal relationship. Both in the short run and long run, the results show a significant positive impact of unemployment on inflation. This implies that Philips curve that shows trade-off between inflation and unemployment rate does not hold in Nigeria both in the short-run and long-run. The granger causality test revealed no causation relationship between inflation and unemployment rate in Nigeria. The recommendations include among others the following: Government should create more job opportunities. This can be done by investing in other sectors of the economy such as the agricultural and industrial sectors. The monetary authority should moderate its current policy stance, lower interest rates, and control the growth of money in order to boost investment and economic growth. This would encourage small-scale businesses to emerge and thus reduce the unemployment rate in the country.