The Robustness Check of Phillips Curve Based onVector Autoregression Models

The Eurozone debt crisis and the U.S. subprime mortgage crisis disturbed the macroeconomic relationships which influenced GDP progression, unemployment levels, inflation, and efficiency of monetary policy. The research uses Vector Autoregression (VAR) model, the model incorporates the unit root tests, cointegration tests, and the impulse response function (IRF) analysis to analyse the dynamic relations between unemployment, inflation, interest rates, and GDP during crisis periods and non-crisis periods. The results indicate that there is a negative relationship between unemployment and GDP but this relationship weakened during financial crises only on a temporary basis. Though fiscal stimulus and employment support cushioned the immediate effect of unemployment, structural changes and technological innovation were the key to long-term recovery. The relationship between inflation and unemployment was not in the Phillips curve where there was delayed and nonlinear response to economic shocks in inflation. Additionally, interest rate adjustments had limited short-term effects on inflation and unemployment, particularly in periods of weak market confidence and deleveraging. The study highlights that monetary policy alone was insufficient in addressing economic downturns, emphasizing the need for coordinated monetary and fiscal policies. Impulse response function analysis shows that while macroeconomic variables experience short-term volatility, they eventually stabilize, demonstrating the economy's self- adjusting capability. However, the speed and magnitude of this adjustment depend on policy response efficiency, market confidence, and external economic conditions. This study shows the necessity of a comprehensive policy approach to enhance economic resilience and provides empirical evidence on the dynamic shifts in macroeconomic relationships during financial crises, offering insights for future policymaking.