Does Phillips Exist in Palestine? An Empirical Evidence

The famous trade-off between inflation rate and unemployment rate is known as the Phillips relation. It is considered as important base for decision makers to stabilize the economy through inflation rate and unemployment rate. Although the Phillips curve is critisized by many researchers, there is a lack of studies that consider emerging-countries economies. The objective of this paper is to find evidence for the relationship between unemployment and inflation in Palestine. According to literature, the relationship is negative in a traditional Phillips curve. We find an inverse relationship between inflation rate and unemployment rate where inflation causes fluctuations in unemployment. In addition, it is shown that inflation rate affects unemployment rate positively only in the short run. This result is unique for Palestinian economy.