UTISGAD-2022-2-1-109

Paper ID: UTISGAD-2022-2-1-109
Title: VALIDITY OF AUGMENTED PHILIPS CURVE HYPOTHESIS IN SUB SAHARAN AFRICAN COUNTRIES: EVIDENCE FROM RATIONAL EXPECTATIONS OF INFLATION RATE
Authors: Obed I. OJONTA, Oliver E. OGBONNA & Ezebuilo R. UKWUEZE

ABSTRACT

The purpose of this study are of twofold: first to examine the validity of augmented Philips curve hypothesis. The second to examine how rational expectations of inflation rate with unemployment rate influences augmented Philips curve hypothesis in Sub-Saharan African countries. To achieve these two objectives, the study uses dynamic sys- Generalized Method of Moments (GMM) technique for the analysis. The study draws a panel data for twenty-six countries in the region for the period 2009-2016. The importance of this study cannot be under estimated. The study helps to show the tradeoff between inflation rate and unemployment.  The estimation results show that the validity of augmented Philips curve with support of rational expectations of inflation rate and unemployment rate is positive. But when the output gap is used as proxy for unemployment rate, the validity of augmented Philips curve hypothesis is negative. The result also shows that the rational expectations of inflation rate with unemployment rate has positive and significant influence on augmented Philips curve hypothesis in Sub-Saharan African countries. This lead to the recommendation that proper policy for the provision of enabling environment for ease of doing business to enhance productivity should be given an adequate attention to ensure a robust employment creation and reduction in inflation rate.

Keywords: Inflation; Unemployment; Philips curve; System GMM; Africa