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Phillips Curve, case study in Cameroon: evaluation of fundamental assumptions

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  • BESSO, CHRISTOPHE RAOUL

Abstract

This study consists of examining the effects of inflation on unemployment in Cameroon. Beginning from the hypothesis which says inflation has a negative effect on unemployment, the Philips curve model was chosen to verify this hypothesis. From the results of this study, the anticipation errors influence negatively the evolution of unemployment rate in Cameroon in such away, if the inflation rate increases, the unemployment rate reduces. The reverse is true that is if the inflation reduces the unemployment rate increases. This negative relationship between the inflation rate and the unemployment rate is witnessed in Cameroon like in the study carried out by Philips in (1958).but here the coefficient of anticipation errors is weak, so the degree of influence will also be weak. Economics agencies will find it difficult in capturing the effect of inflation on employment. The estimated equation gives the natural value of unemployment and the potential inflation rate. As concerns natural unemployment, it is estimated to be 0.6% and the potential inflation rate is estimated to be 21.25%.this means that if markets function normally, the unemployment rate in Cameroon will be 0.6% for 21.25% of inflation rate. The data used was gotten from National Institute of Statistics and the World Bank. The software Eviews was used to carry out estimations.

Suggested Citation

  • Besso, Christophe Raoul, 2010. "Phillips Curve, case study in Cameroon: evaluation of fundamental assumptions," MPRA Paper 35614, University Library of Munich, Germany, revised 28 Dec 2011.
    • Handle: RePEc:pra:mprapa:35614
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    References listed on IDEAS

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    1. Allan Crawford & Marcel Kasumovich, 1996. "Does Inflation Uncertainty Vary with the Level of Inflation?," Staff Working Papers 96-09, Bank of Canada.
    2. Olivier Blanchard & Lawrence F. Katz, 1997. "What We Know and Do Not Know about the Natural Rate of Unemployment," Journal of Economic Perspectives, American Economic Association, vol. 11(1), pages 51-72, Winter.
    3. John Simon, 1996. "A Markov-switching Model of Inflation in Australia," RBA Research Discussion Papers rdp9611, Reserve Bank of Australia.
    4. A. W. Phillips, 1958. "The Relation Between Unemployment and the Rate of Change of Money Wage Rates in the United Kingdom, 1861–1957," Economica, London School of Economics and Political Science, vol. 25(100), pages 283-299, November.
    5. Yannick L'horty & Christophe Rault, 2003. "Why Is French Equilibrium Unemployment So High?," Journal of Applied Economics, Universidad del CEMA, vol. 6, pages 127-156, May.
    6. Lawrence F. Katz & Olivier Blanchard, 1999. "Wage Dynamics: Reconciling Theory and Evidence," American Economic Review, American Economic Association, vol. 89(2), pages 69-74, May.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    inflation; unemployment; space state model;
    All these keywords.

    JEL classification:

    • J08 - Labor and Demographic Economics - - General - - - Labor Economics Policies
    • E65 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Studies of Particular Policy Episodes
    • B22 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Macroeconomics
    • C01 - Mathematical and Quantitative Methods - - General - - - Econometrics

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