Phillips Curve, case study in Cameroon: evaluation of fundamental assumptions

Christophe Raoul Besso

MPRA Paper from University Library of Munich, Germany

Abstract: This study consists of examining the effects of inflation on unemployment in Cameroon. Beginning from the hypothesis which says inflation has a negative effect on unemployment, the Philips curve model was chosen to verify this hypothesis. From the results of this study, the anticipation errors influence negatively the evolution of unemployment rate in Cameroon in such away, if the inflation rate increases, the unemployment rate reduces. The reverse is true that is if the inflation reduces the unemployment rate increases. This negative relationship between the inflation rate and the unemployment rate is witnessed in Cameroon like in the study carried out by Philips in (1958).but here the coefficient of anticipation errors is weak, so the degree of influence will also be weak. Economics agencies will find it difficult in capturing the effect of inflation on employment. The estimated equation gives the natural value of unemployment and the potential inflation rate. As concerns natural unemployment, it is estimated to be 0.6% and the potential inflation rate is estimated to be 21.25%.this means that if markets function normally, the unemployment rate in Cameroon will be 0.6% for 21.25% of inflation rate. The data used was gotten from National Institute of Statistics and the World Bank. The software Eviews was used to carry out estimations.

Keywords: inflation; unemployment; space state model (search for similar items in EconPapers)
JEL-codes: B22 C01 E65 J08 (search for similar items in EconPapers)
Date: 2010-11-24, Revised 2011-12-28
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