The asymmetric effects of unemployment and output on inflation in Greece : a nonlinear ARDL approach

This study examines the asymmetrical effects of unemployment and output on inflation in Greece. It applies a nonlinear autoregressive distributed lag model to focus on how positive and negative economic indicator fluctuations impact inflation. The empirical findings indicate an asymmetric and inverse relationship between inflation and unemployment. In the long run, positive shocks to unemployment affect inflation with greater intensity than negative shocks. The short-run trade-off between unemployment and inflation demonstrates linearity, with inflation showing greater sensitivity and a tendency to increase more during periods of economic expansion. Additionally, we find a nonlinear and positive relationship between inflation and output in both the long and short run. In the long run, negative output shocks have a more significant impact on inflation than positive shocks, while in the short run the results are reversed. These findings suggest that policymakers should carefully consider the nonlinearities of the Phillips curve to avoid policy errors in macroeconomic models.