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An Understanding of How GDP, Unemployment and Inflation Interact and Change across Time and Frequency

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  • Yegnanew A. Shiferaw

    (Department of Statistics, University of Johannesburg, Auckland Park, Johannesburg 2006, South Africa)

Abstract

The main aim of this paper is to examine the dynamic relationship between the three pillars of the economy: unemployment, inflation, and GDP in Ethiopia using the cross-wavelet transform (XWT) analysis, the multivariate Student- t generalized autoregressive score (GAS) model, and the autoregressive distributed lag (ARDL) model. The dynamics between the three indicators were also investigated using the Toda–Yamamoto (TY) causality test. The empirical findings from the XWT method suggest a relationship between unemployment, inflation, and GDP, though the relationship varies over time and frequency. The estimation results from the multivariate Student- t GAS model show that the correlation between unemployment (overall, male, female, and youth) and inflation is highly significant, indicating that the correlation is dynamic. A dynamic relationship exists between GDP and unemployment, except for females and young people. The ARDL approach’s findings showed that unemployment significantly negatively impacted GDP. However, it was found that inflation significantly increased GDP. The general conclusion drawn from this study’s findings is that unemployment significantly affects GDP and inflation. Therefore, the government should aggressively implement policies to reduce unemployment, especially youth unemployment. Additionally, the administration must rehabilitate the country’s badly damaged economy and formalize a lasting cessation of hostilities between the federal government and the Tigray People’s Liberation Front (TPLF).

Suggested Citation

  • Yegnanew A. Shiferaw, 2023. "An Understanding of How GDP, Unemployment and Inflation Interact and Change across Time and Frequency," Economies, MDPI, vol. 11(5), pages 1-15, April.
    • Handle: RePEc:gam:jecomi:v:11:y:2023:i:5:p:131-:d:1132783
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    References listed on IDEAS

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    Cited by:

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    2. Lansheng Cao & Sayed Fayaz Ahmad & Yajun Wang & Syed Jamal Shah & Muhammad Ibrahim & Fuad Mohammed Alhamdi & Mahmoud Izzat Allaham & Ansar Abbas, 2025. "Examining the relationship of inflation, gross domestic product, oil price, foreign direct investment, and trade openness on unemployment in Saudi Arabia," Humanities and Social Sciences Communications, Palgrave Macmillan, vol. 12(1), pages 1-12, December.
    3. Suciu Teodora Maria, 2025. "The Impact Of Unemployment On Social-Economic Determinants In The National Context," Annals - Economy Series, Constantin Brancusi University, Faculty of Economics, vol. 3, pages 91-102, June.
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