APPLICATION OF AUTOREGRESSIVE DISTRIBUTED LAG MODEL ON THE INTERRELATIONSHIP BETWEEN INFLATION AND UNEMPLOYMENT RATES IN NIGERIA

Abstract

Inflation, unemployment and growth are the big macroeconomic issues of our time. On one hand, inflation is bad, especially when unexpected, because it distorts the working of the price system. On the other hand, unemployment is bad because it disrupt lives and is associated with an irrecoverable loss of real output. This paper focus on the interrelationship between inflation and unemployment rates using Autoregressive Distributed Lag (ARDL) approach. To achieve this, annual data on inflation and unemployment was sourced from secondary sources spanning from 1972 to 2014. The unit root test revealed that inflation and unemployment are stationary at first difference. The result further revealed that inflation and unemployment rates in Nigeria follows an ARDL(1,1) for the period under study. Also, the result shows that there is no short run causality from unemployment rates to inflation rates but there exist a long run association between the variables. The study recommends that the present government should focus on how to reduce unemployment rate and inflation rate, in order to reduce hardship on the citizens.