INFLATION AND UNEMPLOYMENT IN NIGERIA: AN INVESTIGATION OF THE PHILIPS CURVE

The primary objective of the macroeconomics is the realization and actualization of full employment for the citizens as well as creating an efficient platform (stable) environment for optimal business/economic activities. This can be achieved by reducing the rate of unemployment and maintaining inflation rate in the economy, significantly. Sequel to this notion, Phillips (1950) proposed and inverse relationship between unemployment and inflation. The model of Phillips is known as the Phillips curve theory. The research is geared towards investigating existence of the theory in the Nigerian economic system. Several diagnostics tests have been conducted to determine the nature of data to ascertain the method of data analysis. Some of the tests conducted in the study include optimal lag selection, unit root tests (i.e. ADF and PP), Engle co-integration regression as well as autoregressive regression model using actual variables, log difference and log difference transformation of the variables. The try to build different models to ascertain the one that best fit the data (Model with/without constant, linear and quadratic trend). Hence, the autoregressive regression of log transformation of inflation rate data and log transformation of unemployment and money supply at lag one indicated that each of the variables is significantly related to inflation rate. The Engle co-integration also showed significant long-run relationships between the variables log transformation. This implies that unemployment reduction depends on both inflation rate and monetary and fiscal policies. The control of money supply also enhances economic growth and on the long-run help in reducing unemployment rate in Nigeria. Conclusively, from this study’s findings, it is concluded that Phillips curve theory holds in Nigeria since there exist is a trade-off link between unemployment and inflation in the period under review, 1980- 2018. Based on the findings the study recommends that government should create efficient platform for business opportunities which subsequently can be translated into unemployment reduction hence meeting up with the inflation trend in the nation.