final assessment methods of economic analysis b03013 the inflation rate and unemployment rate for the philippines

In times of high unemployment, wages typicallyremain stagnant, and wage inflation or rising wages is non-existent.Intimes of low unemployment, the demand for labor by employers exceedsth

VIET NAM GENERAL CONFEDERATION OF LABOUR

TON DUC THANG UNIVERSITY FACULTY OF FINANCE AND BANKING

FINAL ASSESSMENT METHODS OF ECONOMIC ANALYSIS (B03013)

THE INFLATION RATE AND UNEMPLOYMENT RATE FOR

Ho Chi Minh, 25.04.2022

ABSTRACT 3

INTRODUCTION 4

LITERATURE REVIEW 7

DATA 16

UNEMPLOYMENT 16

Philippines unemployment rate chart (2000-2020) 17

INFLATION 17

Philippines inflation rate chart (2000-2020) 18

RESEARCH METHODS 19

RESULT 20

A table of simple regression results 20

A graph of simple regression results 21

REFERENCES 24

ABSTRACT

In this report, we examine the relationship between inflation andunemployment in the Philippines from 2000 to 2020 experimentally.Unemployment and inflation are two widely used economic concepts fordetermining a country's worth The total labor force of countries that areemployed but unemployed is referred to as unemployment Inflation, onthe other hand, is a rise in the cost of goods and services accessible onthe market Unemployment and inflation have a strong relationship.A.W.Philips was the first to notice this link in 1958 Low unemploymentand inflation are great for a country's development; the economy will besteady as a result

When labor demand is high and there are few jobless employees,Phillips hypothesized, businesses are more likely to bid up salariesquickly Workers, on the other hand, are reluctant to accept lower wagesthan the prevalent rate when labor demand is low and unemployment ishigh, and as a result, wage rates decline slowly The rate of change inunemployment is a second element that influences wage rate changes.Employers will bid more aggressively for workers if the economy isbooming—which means labor demand is increasing at a quick rate than

if labor demand is either not increasing or increasing at a sluggish rate.Because wages and salaries are a major input cost for businesses, risingwages should lead to higher prices for goods and services in theeconomy, raising the total inflation rate As a result of this, Phillipsgraphed the relationship between general price inflation and

unemployment rather than pay inflation The Phillips Curve is the namegiven to this graph today.

- Why are inflation and unemployment important to the economy?

+ Inflation and unemployment are two important issues in the economy,which are of great interest to economists Inflation is a commonmacroeconomic phenomenon and has a wide impact on all aspects of themodern economy Unemployment is always a concern of the wholesociety and also a concern of all working people, because it is associatedwith their material and spiritual life Policymakers want to keep inflation

at a stable and reasonable level (less than or equal to 5%) and keep theunemployment rate low In the short term it is very difficult to achieveboth of these goals at the same time However, the interaction andinterplay between inflation and unemployment do not always followeconomic principles Why is that so? What measures have policy makerstaken to help the economy achieve the most optimal efficiency inchoosing between inflation and unemployment? Learning aboutinflation, unemployment and the relationship between them is animportant issue, helping us better understand the two phenomena and theways policy makers can use to deal with them

+ When unemployment is high, the number of people looking for worksignificantly exceeds the number of jobs available In other words, thesupply of labor is greater than the demand for it

Let's take wage inflation—the rate of change in wages—as a proxy forinflation in the economy With so many workers available, there's littleneed for employers to "bid" for the services of employees by payingthem higher wages In times of high unemployment, wages typicallyremain stagnant, and wage inflation (or rising wages) is non-existent.Intimes of low unemployment, the demand for labor by employers exceedsthe supply In such a tight labor market, employers typically need to payhigher wages to attract employees, ultimately leading to rising wageinflation.Over the years, economists have studied the relationshipbetween unemployment and wage inflation, as well as the overallinflation rate.

- Target

+ The thesis research solves the relationship between growth, inflationand unemployment, on the basis of assessing the actual relationshiptaking place in the Philippines, from which to propose methods to limitactivities that affect profits together in the realization of goals,development and unemployment in our country

- Result

+ Research results can serve for separate analysis of growth, inflation,and unemployment indicators in relation to the remaining indicators

+ Research results can be used to simulate policy implementation ofgrowth, unemployment or inflation targets, which, when put intopractice, will have an impact on other economic indicators.

+ The growth and development practices of the world's economies showthat the important macroeconomic variables growth, inflation andunemployment have a certain relationship The system of researchtheories has been approaching to explain the nature and regularity of therelationship between these pairs of categories From that, it also showsthat it is important for policy makers, that it is impossible to separate theindicators of growth, inflation or unemployment independently of eachother and that the movement of this indicator is not positively ornegatively affect other macro indicators Likewise, we cannotsimultaneously achieve the goal of high growth, while inflation ismoderate, or unemployment is low while inflation is kept low, etc Theseare impossible goals and the Policy makers and citizens need to see thisissue

On that basis, the research team conducts research according to a cutting thought that is: to test the current situation of growth,unemployment and inflation in Philippines with the current system ofmacroeconomic theory , find out the causes of irregularities andirregularities and initially try to analyze the correctness and impact ofthe State's issued policies on policy beneficiaries and the wholeeconomy

cross-+ By measuring the relationship of these two variables, the chosenmethod is to perform regression tests to find whether there is a negative,positive or no relationship at all The Phillips curve which is created byperforming regression analyses will be conducted in excel and presented

in the thesis By reading previous articles in similar areas the authorsconcluded that regression analyses to be the best fit and method to usewhile investigating the relationship of inflation and unemployment

LITERATURE REVIEW

In his seminal paper “The Relationship between Unemployment and theRate of Change of Money Wage Rates in the United Kingdom 1861–1957,” William Phillips argued that there existed a strong negativeassociation between unemployment and inflation in the United Kingdomover the observation period Since the study’s publication, numerousacademic inquiries have been devoted to this topic The findings of theseacademic inquiries have either confirmed or refuted the Phillips Curvehypothesis Among prominent economists who support the existence ofthe Phillips Curve are Paul Samuelson and Robert Solow (1960).Samuelson and Solow examined the relationship between these twomacroeconomic variables in the context of the United States economyand concluded that there existed an inverse relationship betweenunemployment and inflation in the country Significant contributions tothe research on the Phillips Curve were made by Solow (1970) and

Gordon (1971) whose studies on the United States’s economy confirmedthe existence of a negative trade-off relationship between unemploymentand inflation in that country The empirical findings from Solow’s andGordon’s research studies have been known as the “Solow-Gordonaffirmation” of the Phillips Curve However, despite a solid theoreticalfoundation and a number of studies that confirmed the validity of thePhillips Curve, some economists voiced their strong disagreement thatthere exists an inverse relationship between unemployment and inflation.These criticisms of the Phillips Curve began as early as the 1960s AsIslam et al (2003, 107) observed, “Since its inception, the Phillips Curvehypothesis has been open to debates.” Such prominent economists asFriedman (1968) and Phelps (1967) criticised the Phillips Curvehypothesis and offered counter-argumentations to the existence of thetrade-off relationship between unemployment and inflation BothFriedman (1968) and Phelps (1967) conceded that there could exist anegative relationship between unemployment and inflation but only inthe short run In the long run, unemployment rate would conform to thevertical pattern and the trade-off relationship between the two variableswould cease to exist According to Friedman (1968) and Phelps (1967),policymakers may be concerned about the short-run consequences of theprice stabilization policy that may have a negative impact onunemployment rate However, in the long run, unemployment rate wouldstabilize around an equilibrium level Taking into consideration thisconsequence, policymakers can proceed to devise monetary policieswithout worrying about the negative impact of these policies on

unemployment rate A recent study by Cashell (2004) supported thisargumentation The researcher asserted that in the long run,unemployment would move toward an equilibrium level which isdubbed as a natural rate of unemployment or “non-accelerating inflationrate of unemployment (NAIRU).” Robert Lucas (1976), a prominenteconomist belonging to the Chicago school of economic thought andamong the critics of the Phillips Curve, argued that the trade-offrelationship between unemployment and inflation would exist only ifworkers do not expect that policymakers could create an artificialsituation of high inflation combined with low unemployment If theworkers foresee an impending high inflation they would demand anincrease in wages In this situation, high unemployment and highinflation would co-exist, which contradicts the Phillips Curvehypothesis This line of argumentation is known as the “Lucas critique.”

A systematic and thorough criticism of the Phillips Curve put forward byLucas in the 1970s led to a loss of interest in this topic among theacademics As Debelle and Vickery (1998, 384) put it, “The PhillipsCurve fell into a period of neglect in academic circles during the 1980s,while remaining an important tool for policymakers.” However, in the1990s, there occurred a revival in the Phillips Curve research and thetopic became “the subject of intensive debate (e.g., the symposium in theJournal of Economic Perspectives)” (Debelle and Vickery 1998, 384).Among the numerous studies in the 1990s, a study by King and Watson(1994) examined the Phillips Curve hypothesis using the U.S post-warmacroeconomic data Their findings provided empirical support to the

existence of the trade-off relation between unemployment rate andinflation rate in the United States The researchers maintained that therecould exist an inverse relationship between unemployment and inflationprovided that the long-run and the short-run noises are eliminated fromthe data Hogan (1998) examined the Phillips Curve using the U.S.macroeconomic data for the period from 1960 to 1993 The results of theinquiry supported the existence of a significant and negative relationshipbetween unemployment and inflation although the traditional PhillipsCurve seemed to over-predict the rate of inflation Recent improvements

in the methods of data analysis allow a more thorough examination ofthe Phillips Curve hypothesis Some research studies employed paneldata analysis to analyze the “common” Phillips Curve in differentcountries over the same period of time For example, DiNardo andMoore (1999) used the panel data analysis and the methods of ordinaryleast squares (OLS) and generalized least squares (GLS) to test theexistence of the Phillips Curve in nine Organisation for Economic Co-operation and Development (OECD) member countries Their findingsconfirmed the existence of the “common” Phillips Curve As DiNardoand Moore (1999, 19) concluded, “In sum, we believe that our resultsshow a remarkable robust relationship between relative inflation andrelative unemployment.” Turner and Seghezza (1999) employed thepanel data method to examine the Phillips Curve in 21 OECD countries

data, they used the method of seemingly unrelated estimation (SURE)rather than the OLS The findings of Turner and Seghezza’s (1999) study

provided a “strong support” for the existence of “common” PhillipsCurve among 21 OECD member countries Arratibel et al (2002)analyzed New Keynesian Phillips Curve with forward-looking In hisseminal paper “The Relationship between Unemployment and the Rate

of Change of Money Wage Rates in the United Kingdom 1861–1957,”William Phillips argued that there existed a strong negative associationbetween unemployment and inflation in the United Kingdom over the

inquiries have been devoted to this topic The findings of these academicinquiries have either confirmed or refuted the Phillips Curve hypothesis.Among prominent economists who support the existence of the PhillipsCurve are Paul Samuelson and Robert Solow (1960) Samuelson andSolow examined the relationship between these two macroeconomicvariables in the context of the United States economy and concluded thatthere existed an inverse relationship between unemployment andinflation in the country Significant contributions to the research on thePhillips Curve were made by Solow (1970) and Gordon (1971) whosestudies on the United States’s economy confirmed the existence of anegative trade-off relationship between unemployment and inflation inthat country The empirical findings from Solow’s and Gordon’s researchstudies have been known as the “Solow-Gordon affirmation” of thePhillips Curve However, despite a solid theoretical foundation and anumber of studies that confirmed the validity of the Phillips Curve, someeconomists voiced their strong disagreement that there exists an inverserelationship between unemployment and inflation These criticisms of