Economists discover that there is an inverse trade-off relationship between a country’s unemployment rate and inflation rate, i.e. when unemployment rate decreases, inflation rate tends to increase. It is known as the Phillips curve. (Although further study suggests that it is the deviation from the expected inflation rate, not the actual inflation rate, fits the economic theory, I will still use the actual inflation rate for this analysis.) I will use the macroeconomics data to test this theory and see which countries faces the worst trade-off over the years.
The reason this trade-off is interesting to economists is that if the inverse causal relationship exists, a country’s central bank can use this result to influence the unemployment rate, by manually increasing the inflation rate by a certain amount. They can increase money supply to provide incentives for the labor market to improve the employment status.
Over the years, the theory goes deeper than the superficial inflation and the relationship has been tested more deeply over the years. The simple inverse relationship has been debunked. Nonetheless, I am still interested in the pair and want to see whether there’s any kind of pattern.