Critiquing the Phillips Curve in Zimbabwe through Econometric Modelling

Abstract

Inflation and unemployment in Zimbabwe seem to have been moving in the same direction, contrary to the Phillips curve theory which holds the view that the relationship is inverse. This study sought to determine the extent to which the theory is relevant in Zimbabwe. Yearly data for inflation and unemployment from 1990 to 2017 were used for the study. Ordinary Least Squares (OLS) was used to determine the relationship. A few Stationarity and Cointegration tests were carried out, with data becoming stationarity after first differencing. The Augmented Dickey Fuller test was used. There was also evidence of cointegration between the two variables using the Johansen Cointegration test technique. The results of the study established a stable and permanent inverse relationship between Inflation and Unemployment in Zimbabwe, conforming to the Phillips Curve theory. The Zimbabwean government should, therefore, work towards growing its economy through adopting a policy mix which embraces macro-economic indicators that have a direct impact on both inflation and unemployment.