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Analysing the Relationship between Unemployment Rate, Inflation Rate, and the Effect they have on Gross Domestic Product in the United Kingdom (1990-2023)

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  • Lachezar Pavlov
  • Aleksandar Vasilev

Abstract

This paper examines the relationship between unemployment rate, inflation rate and economic output in Britain over 34 years. It utilizes a range of different time series techniques, including the ADF and PP unit root test, the autoregressive distributed lag model to cointegration (ARDL model). The modelling provides some useful insights on both the long-run and short-run relationship between the variables. The following results have been produced: The unemployment time series bound test has shown to be inconclusive regarding a long-run relation, while the CPI bounds test showed to have a long-run relation with the other variables, and the bounds test for output showed only a short-run relation. The results in this paper are useful for further development and understanding of the topic and the dynamic interactions on a macroeconomic level.

Suggested Citation

  • Lachezar Pavlov & Aleksandar Vasilev, 2025. "Analysing the Relationship between Unemployment Rate, Inflation Rate, and the Effect they have on Gross Domestic Product in the United Kingdom (1990-2023)," EERI Research Paper Series EERI RP 2025/03, Economics and Econometrics Research Institute (EERI), Brussels.
    • Handle: RePEc:eei:rpaper:eeri_rp_2025_03
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    References listed on IDEAS

    as
    1. Regis Barnichon & Andrew Figura, 2015. "Labor Market Heterogeneity and the Aggregate Matching Function," American Economic Journal: Macroeconomics, American Economic Association, vol. 7(4), pages 222-249, October.
    2. Galí, Jordi & Gertler, Mark, 1999. "Inflation Dynamics: A Structural Economic Analysis," CEPR Discussion Papers 2246, C.E.P.R. Discussion Papers.
    3. Calvo, Guillermo A., 1983. "Staggered prices in a utility-maximizing framework," Journal of Monetary Economics, Elsevier, vol. 12(3), pages 383-398, September.
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    More about this item

    Keywords

    Unemployment rate; inflation rate; output; bounds test; ARDL model;
    All these keywords.

    JEL classification:

    • E10 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - General
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation

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