The Relationship between Unemployment and Inflation in Nigeria

Abstract

The study investigates the relationship between inflation and unemployment in Nigeria from 1981 to 2017. The unit root and F-Bound test were employed to test the stationarity of the variables and long run relationship between inflation and unemployment while ARDL ECM technique was adopted to analyse the data obtained. The result of the analysis confirms the existence of long run relationship between inflation and unemployment while the variables were stationary at level and first difference respectively. Furthermore, findings depict that in the long run, there was a positive relationship between inflation and unemployment while in the short run, the result found an inverse relationship between inflation and unemployment. The result of ARDL ECM indicates a 92% of speed of adjustment in the short run disequilibrium back to equilibrium. The study recommends that expansionary monetary policy through reduction of rate of interest stimulates consumption and investment which leads to aggregate demand and in turn leads to employment.