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October 3, 2025

Unemployment and Inflation in the Philippines: New Evidence from Vector Error Correction Model

Key Points

There exists a cointegrating relationship between unemployment and inflation in the Philippines, indicating a long-term association.
The study finds no causal relationship between unemployment rate and inflation rate despite the observed cointegration.
The analysis utilizes a vector error correction model to investigate the relationship over a span from 1980 to 2006.
Understanding this relationship is crucial for effective macroeconomic management in the Philippines.

Abstract

This article empirically analyzes the relationship between unemployment rate and inflation rate in the Philippines over the period 1980-2006. The negative association between unemployment and inflation is known as the Phillips Curve because the trade-off relationship between these two variables was first pointed out by William Phillips in 1958. Since then, the Phillips Curve has remained an important foundation for macroeconomic management in various countries. The main finding of this study is that there exists a cointegrating relationship--but no causal relationship--between unemployment rate and inflation rate in the Philippines.

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Unemployment and Inflation in the Philippines: New Evidence from Vector Error Correction Model

Key Points

Abstract

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