Reexamining Phillips Curve: An Empirical Analysis From Structural Vector Autoregression

  • Gatot Sasongko Satya Wacana Christian University
  • Martha Patricia Yolanda Satya Wacana Christian University
  • Andrian Dolfriandra Huruta Satya Wacana Christian University https://orcid.org/0000-0001-7676-5294
  • Min-Sun Kim Chung Yuan Christian University
Keywords: Phillips Curve, Unemployment, Inflation, SVAR, Indonesia

Abstract


In the literature, the existence of the Phillips curve in every country has been extensively explored. The goal of this research is to investigate the inflation-unemployment trade-off in Indonesia. We used secondary data for 1977 through 2019 from the World Bank for analysis. The Structural Vector Autoregression (SVAR) results revealed a negative connection between unemployment and inflation. There is a one-way relationship between unemployment and inflation in particular. We discovered several factors that influence unemployment. Those factors include working population over 15 years old according to the primary employment (both field and status) and Gross Domestic Product at constant prices according to expenditures.

Author Biographies

Gatot Sasongko, Satya Wacana Christian University

Department of Economics, Satya Wacana Christian University, 52-60 Diponegoro Rd, Salatiga City, 50711, Indonesia

Martha Patricia Yolanda, Satya Wacana Christian University

Department of Economics, Satya Wacana Christian University, 52-60 Diponegoro Rd, Salatiga City, 50711, Indonesia

Andrian Dolfriandra Huruta, Satya Wacana Christian University

Department of Economics, Satya Wacana Christian University, 52-60 Diponegoro Rd, Salatiga City, 50711, Indonesia

Min-Sun Kim, Chung Yuan Christian University

International Undergraduate Program in Business and Management, Chung Yuan Christian University, 200 Zhong Bei Rd, Zhong Li District, Taoyuan City, 32023, Taiwan, ROC

References

Abbas, S. K., & Sgro, P. M. (2011). New Keynesian Phillips Curve and Inflation Dynamics in Australia. Economic Modelling, 28(4), 2022–2033.

Adenomon, M. O., Okoro-Ugochukwu, N. A., & Adenomon, C. A. (2018). On the Determinants of Unemployment Rate in Nigeria: Evidence from Fully Modified OLS and Error Correction Model. Preprints, 1–28.

Afzal, M., & Awais, S. (2012). Inflation-Unemployment Trade Off : Evidence from Pakistan. Global Economy, 8(1), 21–32.

Al-zeaud, H., & Al-hosban, S. (2015). Does Phillips Curve Really Exist? An Empirical Evidence from Jordan. European Scientific Journal, 11(10), 253–275.

Anning, L., Tuama, A., & Darko, S. (2017). Inflation, Unemployment and Economic Growth: Evidence from the VAR Model Approach for the Economy of Iraq. International Journal of Developing and Emerging Economies, 5(1), 26–39.

Astuti, P. (2016). Analisis Kurva Phillips Dan Hukum Okun di Indonesia Tahun 1986-2016. Jurnal Fokus Bisnis, 15(1), 72–91.

Azam, M., Khan, S., & Ștefănescu, L. (2015). Investigating the Stability of Phillips Curve: Panel Data Evidence from Developing World. In Karkowska, R. (Ed.), Challenges to Financial Stability - Perspective, Models and Policies Volume II. Towards Financial Stability - Macroprudential Policy and Perspectives (pp. 179–194). Romania: ASERS Publishing.

Central Bureau of Statistics (2018a). Booklet Survei Angkatan Kerja Nasional Agustus 2018. https://www.bps.go.id/publication/2018/12/14/646b4fb626979f3e154e63d7/booklet-survei-angkatan-kerja-nasional-agustus-2018.html

Central Bureau of Statistics (2018b). Penduduk 15 Tahun Ke Atas yang Bekerja menurut Lapangan Pekerjaan Utama 1986-2018. https://www.bps.go.id/statictable/2009/04/16/970/penduduk-15-tahun-ke-atas-yang-bekerja-menurut-lapangan-pekerjaan-utama-1986---2020.html

Central Bureau of Statistics (2018c). Proporsi Lapangan Kerja Informal Sektor Non-Pertanian Menurut Provinsi, 2015-2018. https://www.bps.go.id/dynamictable/2018/05/16/1307/proporsi-lapangan-kerja-informal-sektor-non-pertanian-menurut-provinsi-2015---2018.html

Central Bureau of Statistics (2020a). Jumlah Penduduk Berusia 15 Tahun Ke Atas Yang Bekerja Pada Lapangan Pekerjaan Utama Tahun 1996-2019. https://www.bps.go.id/statictable/2009/04/16/970/penduduk-15-tahun-ke-atas-yang-bekerja-menurut-lapangan-pekerjaan-utama-1986---2019.html

Central Bureau of Statistics (2020b). PDB Atas Dasar Harga Konstan Menurut Pengeluaran Tahun 1993-2019. https://www.bps.go.id/dynamictable/2015/08/06/833/-seri-2010-pdb-triwulanan-atas-dasar-harga-konstan-2010-menurut-pengeluaran-miliar-rupiah-2014-2020.html

Central Bureau of Statistics (2020c). Penduduk 15 Tahun Ke Atas Menurut Status Pekerjaan Utama. https://www.bps.go.id/statictable/2009/04/16/971/penduduk-15-tahun-ke-atas-menurut-status-pekerjaan-utama-1986---2019.html

Bank Indonesia (2018). Sejarah Bank Indonesia: Moneter Periode 1997-1999 Cakupan. Unit Khusus Museum Bank Indonesia. https://www.bi.go.id/id/layanan/museum-bi/default.aspx

Blanchard, O., & Quah, D. (1989). The Dynamic Effects of Aggregate Demand and Supply Disturbances. The American Economic Review, 79(4), 655–573.

Chletsos, M., Drosou, V., & Roupakias, S. (2016). Can Phillips curve explain the recent behavior of inflation? Further evidence from USA and Canada. The Journal of Economic Asymmetries, 14, 20–28.

Dammak, T. B., & Boujelbene, Y. (2009). The nature of the Phillips curve in Tunisia: new empirical evidence. International Journal of Monetary Economics and Finance, 2(2), 126–143.

Friedman, M. (1968). The Role of Monetary Policy. American Economic Review, 58(1), 1–17.

Gul, H., Mughal, K., Kakar, G. A., Hussain, A., & Khaliq, S. (2012). Revisiting of Philips Curve: A Case Study from Pakistan. International Journal of Business and Behavioral Science, 2(6), 53–78.

Haq, I. U., Khan, S., Khan, A., & Ahmed, E. (2012). Phillips Curve or Locus Critique: Time Series Evidence from Pakistan. Journal of Economics and Behavioral Studies, 4(4), 190–193.

Hindrayanto, I., Samarina, A., & Stanga, I. M. (2019). Is the Phillips curve still alive? Evidence from the euro area. Economics Letters, 174, 149–152.

Ivanov, V., & Kilian, L. (2005). A Practitioner's Guide to Lag Order Selection for VAR Impulse Response Analysis. Studies in Nonlinear Dynamics & Econometrics, 9(1), 1–36.

Jalaee, S. A., Lashkary, M., & GhasemiNejad, A. (2019). The Phillips curve in Iran: econometric versus artificial neural networks. Heliyon, 5(8), e02344.

Jaradat, M. A. (2013). Impact of Inflation and Unemployment on Jordanian GDP. Interdisciplinary Journal of Contemporary Research in Business, 4(10), 317–334.

Keynes, J. M. (1936). The General Theory of Employment, Interest, and Money. New York: MacMillan.

Mankiw, N., Euston, Q., Wilson, P. (2013). Principles of Economics: An Asian Edition (2nd ed). Singapore: Cengage Learning Asia.

Mankiw, N. (2016). Macroeconomics (9th ed). New York: Worth Publisher.

Maqbool, M., Sattar, T., & Bhalli, M. (2013). Determinants of Unemployment: Empirical Evidences From Pakistan. Pakistan Economic and Social Review, 51(2), 191–207.

Moise, O. F. (2015). Applicability of the Phillips curve in Romania, for the age group 15- 19 years. Procedia Economics and Finance, 20(15), 224–231.

Muchdie, M. (2016a). Does The Philips Curve Exist?: Cross-Section Evidences From Allover the World. International Journal of Current Advanced Research, 5(10), 1349–1356.

Muchdie, M. (2016b). The Existence of Philips Curve In The Long Run: Some Evidences From Australian, South Korean and Indonesian Economies. International Journal of Current Advanced Research, 5(11), 1422–1426.

Naish, H. F. (1988). Imperfect Competition, Price Adjustment Costs, and the Long-Run Phillips Curve. Journal of Macroeconomics, 10(1), 103–124.

Okafor, I. G., Chijindu, E. H., & Ugochukwu, U. S. (2016). Responsiveness of Unemployment to Inflation : Empirical Evidence from Nigeria. International Journal of Scientific Research in Science and Technology, 2(4), 173–179.

Orji, A., Anthony-orji, O., & Okafor, J. (2015). Inflation And Unemployment Nexus In Nigeria: Another Test of the Phillips Curve. Asian Economic and Financial Review, 5(5), 766–778.

Pffaf, B. (2008). Analysis of Integrated and Cointegrated Time Series with R. New York: Springer Science and Business Media.

Phillips, A. W. (1958). The Relation Between Unemployment and the Rate of Change of Money Wage Rates in the United Kingdom, 1861-1957. Economica, 25(100), 283–299.

Rosadi, D. (2012). Ekonometrika dan Analisis Runtun Waktu Terapan Dengan Eviews. Yogyakarta: ANDI.

Sa'idu, B., & Muhammad, A. (2015). Do Unemployment and Inflation Substantially Affect Economic Growth? Journal of Economics and Development Studies, 3(2), 132–139.

Samuelson, P. A., & Solow, R. M. (1960). Analytical Aspects of Anti-inflation Policy. American Economic Review, 50(2), 177–194.

Sasongko, G., & Huruta, A. D. (2019), “The causality between inflation and unemployment: The Indonesian evidence”, Business: Theory and Practice, 20, 1–10.

Sasongko, G., Huruta, A. D., & Gultom, Y. N. V. (2019). Does the Phillips curve exist in Indonesia? A panel Granger causality model. Entrepreneurship and Sustainability Issues, 6(3), 1428–1443.

Seyfried, W. L., & Ewing, B. T. (2001). Inflation Uncertainty and Unemployment: Some International Evidence. The American Economist, 45(2), 33–39.

Sunarsih, S. (2018). Minimum wage analysis, inflation and the effect of the unemployment and purchasing power within the ex Besuki Residency. International Journal of Humanities and Social Science Invention, 6(8), 66–71.

Winarno, W. W. (2015). Analisis Ekonometrika dan Statistik Dengan Eviews (4th ed). Yogyakarta: UPP STIM YKPN.

World Bank (2018). Inflation, Consumer Prices (Annual %). https://data.worldbank.org/indicator/FP.CPI.TOTL.ZG?locations=ID

World Bank (2019). Unemployment, total (% of total labor force) (national estimate). https://data.worldbank.org/indicator/SL.UEM.TOTL.NE.ZS

Published
2022/04/27
Section
Original Scientific Paper