Revisiting the Phillips curve in Liberia: An empirical analysis of inflation and unemployment dynamics

Sunday Heagbetus
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Sunday Heagbetus: University of Liberia

Canadian Stata Users' Group Meetings 2025 from Stata Users Group

Abstract: This study investigates the empirical relevance of the Phillips curve in Liberia from 2001 to 2023, addressing a critical research gap in fragile, low-income economies. Despite extensive global literature, Liberia’s inflation–unemployment dynamics remain understudied amid persistent macroeconomic volatility and structural labor market weaknesses. This study employs a multimethod econometric framework, including OLS, robust and quantile regressions, and vector autoregressive (VAR) models, to evaluate the interplay between inflation, unemployment, money supply, and exchange rate. Granger causality, impulse–response, and variance decomposition techniques reinforce the analysis, revealing strong, bidirectional feedback between exchange rate movements and inflation. Findings show a weak but negative short-run relationship between inflation and unemployment, broadly validating the Phillips curve hypothesis. Exchange rate depreciation consistently emerges as the primary driver of inflation, while money supply exhibits an unexpected but statistically significant deflationary effect. Interaction terms suggest the inflation–unemployment relationship is conditioned by macroeconomic context. The study concludes that inflation control in Liberia requires exchange rate stabilization, targeted structural reforms, and employment-sensitive policies. These findings challenge monetarist orthodoxy and highlight the need for integrated, context-specific macroeconomic strategies in postconflict settings.

Date: 2025-10-05
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