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Is the Phillips Curve Stable for Malaysia?

April 26, 2017curve Malaysia Phillips STABLE

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Is the Phillips Curve Stable for Malaysia?

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The objective of this study is to investigate the stability of trade-off Phillips curve in Malaysia. The sample covers annual data from 1970 to 2005. This study finds that trade-off Phillips curve exists in Malaysia for both short run and long run. Furthermore, there is a stable long-run tradeoff relationship between the inflation and unemployment rates in Malaysia. Keywords: Cointegration, inflation, unemployment, Phillips curve JEL Classification: C01, E24, E31 1. Introduction The Phillips (1958) curve which trade-offs between inflation and unemployment rates had been long debated in the economics literature. Several studies have investigated this relationship, among them being Phelps (1967), Leijonhufvud (1968) and Brinner (1977). They agreed that the trade-off Phillips curve was dead in the industrialised countries and had shifted out from the actual economy. Friedman (1968) added that the trade-off Phillips curve would not exist in the long run because this relationship is tempora