Phillips Curve in a Small Open Economy: A Time Series Exploration of North Cyprus

The paper explores the existence and the stability of the Phillips curve using time series data for North Cyprus, a small developing economy. ADF unit root test is employed to check for stationarity. ARDL and DOLS approaches to cointegration are used to explore the long run relation and ECM to understand short run dynamics. The predictive properties DOLS are better than those of the conventional methods. The estimates point to the existence of Phillips curve both in the long and the short run. CUSUM and CUSUMsq tests confirm the stable relation.