Inflation, which expresses the steady increase in the general level of prices and unemployment, which indicates that people want to work but cannot find a job due to different reasons are the main problems tried to be solved by those who shape the economic policy. Since inflation and unemployment decrease the welfare level of individuals, in economies low inflation and low unemployment are aimed, but these two goals generally conflict with each other. In the economic literature, the relationship between inflation and unemployment is analyzed with the Phillips Curve approach, which reveals that a high inflation leads to low unemployment and a low inflation leads to high unemployment. For this reason, while policymakers try to reduce inflation and ensure price stability; on the other hand, they strive to increase production and thus economic growth by reducing unemployment rates. The aim of this study is to test the validity of the Phillips Curve by analyzing the relationship between inflation and unemployment in Turkey. In this study, the relationship between unemployment and inflation in Turkey during 2005:1-2020:2 were examined. In the study, monthly inflation and unemployment data from the Turkey Statistical Institute was used for the relevant period. To examine the relationship between these variables, primarily the stationarity of the series was subjected to unit root tests. Then, it was investigated whether there is a long term relationship with the cointegration test. After determining the long-term relationship between the variables, the Vector Error Correction Model (VECM) was estimated to determine the direction of the relationship.
Keywords: Inflation, Unemployment, Cointegration Analysis, VECM
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