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Causal Linkage between Inflation and Unemployment: An evidence from the Selected MENA Countries

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  • Tarek Kacemi
  • Sallahuddin Hassan

    (Universiti Utara Malaysia)

Abstract

The current study measures the causal association between inflation and unemployment employing Phillips Curve approach from 1990 until 2016 for selected MENA countries. Granger causality and the heterogeneous causality methods for Panel are employed by this study as proposed by Dumitrescu and Hurlin. This causality test has an advantage over the panel Granger causality as it considers two dimensions of heterogeneity. The finding revealed a unidirectional causality between unemployment and inflation with Panel Dumitrescu and Hurlin Granger causality but not in the panel Granger causality test. Therefore, the governments should choose to stabilize inflation rate or reduce unemployment rate.

Suggested Citation

  • Tarek Kacemi & Sallahuddin Hassan, 2018. "Causal Linkage between Inflation and Unemployment: An evidence from the Selected MENA Countries," Pakistan Journal of Humanities and Social Sciences, International Research Alliance for Sustainable Development (iRASD), vol. 6(1), pages :121-131, March.
    • Handle: RePEc:ani:ipjhss:v:6:y:2018:i:1:p:121-131
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    References listed on IDEAS

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    4. Granger, C W J, 1969. "Investigating Causal Relations by Econometric Models and Cross-Spectral Methods," Econometrica, Econometric Society, vol. 37(3), pages 424-438, July.
    5. Cobus Vermeulen, 2015. "Inflation, growth and employment in South Africa: Trends and trade-offs," Working Papers 547, Economic Research Southern Africa.
    6. Fischer, Stanley, 1977. "Long-Term Contracts, Rational Expectations, and the Optimal Money Supply Rule," Journal of Political Economy, University of Chicago Press, vol. 85(1), pages 191-205, February.
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