NONLINEAR EQUILIBRIUM RELATIONSHIP BETWEEN INFLATION AND EMPLOYMENT: EVIDENCE FROM CÔTE D’IVOIRE

Year 2018, Volume: 7 Issue: 1, 76 - 82, 30.03.2018

Coffie Francis José N'guessan

https://doi.org/10.17261/Pressacademia.2018.796

Abstract

Purpose- The main objective of this paper is to test the existence of
a stable long-run relationship between price level and employment for an
African country.

Methodology- This paper employs two types of co-integration and
error correction methodologies: the Engel-Granger cointegration model which
assumes symmetric adjustment toward equilibrium and a  Threshold co-integration approach  that considers asymmetric adjustment toward
equilibrium. Before making cointegration analysis we apply unit root test to
check for the stationnarity of the series.

Findings- We found
evidence of a stable long-run relationship between price level and employment
in Côte d’Ivoire and a positive relationship between the two variables.
However, the adjustment towards the equilibrium is asymmetric since positive
shocks are absorbed more rapidly than negative ones.  Moreover, there was no causality between the
two variables in the short run.

Conclusion- The results indicate that in Côte d’Ivoire, inflation
stability may be incomptaible with employment maximization. So to reduce
unemployment rate, it is necessary to accept a certain level of inflation rate. 

Keywords

Phillips curve, inflation, employment, symmetric co-integration, threshold co-integration

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