ABSTRACT. This paper tests for the validity of the Philips curve hypothesis in Nigeria. It employed generalized error correction model and time series data on Inflation, unemployment and gross domestic product from 1970–2010. The paper differs from others because of its methodology. While other variants of error correction model would require the variables to be unit root free, the GECM is good for series with or without unit root. The result showed that the short run inverse relationship hypothesized between inflation and unemployment by the Philips curve exists but is not significant, while inflation and unemployment were found to move in the same direction in the long run. For the relationship between inflation and unemployment on growth, the result showed that inflation accompanies growth while unemployment has a negative relationship with growth. Thus, contrary to the expectation that achieving low inflation was likely to increase unemployment, it is rather possible to achieve low inflation and stimulate employment creation in Nigeria. However, policy measures aimed at reducing unemployment is important as employment creation cannot be left as a consequence of achieving price stability and growth alone. pp. 59–68
JEL Codes: E24, E31, O47, C22

Keywords: unemployment, inflation, growth, Generalized Error Correction Model

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Department of Statistics and Population Studies
University of Western Cape
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National Institute for Legislative Studies, Abuja

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