Phillips Curve in Pakistan: A Graphical and Empirical Analysis

This study estimates the Phillips curve for Pakistan using time series data for unemployment and CPI for the years 1972 to 2018. In addition to empirical analysis extensive graphical analysis is conducted to get a better insight of the behavior of the Phillips curve. By dividing the sample size into periods of four decades and 2 equal halves the trend line is plotted for different periods which experience a shift as well as change in slope over time. The unit root tests proved the data to be stationary at level so OLS is used to run 3 different regressions. Since the data for unemployment contains a lot of repeated values which is problematic for post-regression analysis so output gap is also used as a proxy for unemployment. The empirical analysis is in accordance to the graphical analysis which shows a negative relationship between unemployment and inflation.