The Validity of the Short Run and the Long Run Phillips Curve in Kenya
Journal Title: Journal of Economics, Finance and Management Studies - Year 2022, Vol 5, Issue 11
Abstract
Levels of unemployment is of great concern to policy makers in most world economies. Many models have been developed to address the problem but no clear solution has been found. Closely related to unemployment is the problem of inflation. Stagflation, a condition where both unemployment and inflation are high at the same time has resulted to ineffectiveness of policies issued by monetary authorities in Kenya. Solutions to unemployment and inflation are challenges experienced by policy makers in many economies. The purpose of this study was to empirically analyze the validity of Philips curve in the Kenyan economy. The study was informed by the ever increasing unemployment rates, cost of living and the inadequate attention inform of policies made by the policy makers to alleviate the economy from this problem. The study adopted an explanatory research design and employed an Auto-Regressive Distributed Lag (ARDL) and Error Correction Model (ECM) to analyze both the short run and the long run results. The study sample entailed of annual secondary time series data set for a period of 30 years from 1991 to 2020, sourced from KNBS, Central Bank of Kenya, and World Bank. The findings of the study concluded that the relationship between unemployment and inflation was positive and insignificant both in the short run and in the long run. The Non-Accelerating Inflation Rate of Unemployment (NAIRU) was estimated to be 6.26 percent but insignificant. The findings of the study also showed that money supply and government expenditure had a negative and positive but insignificant relationship with unemployment in the short run. The study recommends that the government should not employ Phillips curve as an instrument for policy implementation in Kenya. This is because both unemployment and inflation are positively related. Finally, the government should come up with a supplementary policy of cushioning the economy against the harsh effects of structural breaks on unemployment in the economy.
Authors and Affiliations
Peter Mwai Kinuthia
Keywords
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- EP ID EP726529
- DOI 10.47191/jefms/v5-i11-10
- Views 74
- Downloads 0
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