Is the Phillips Curve Valid in Fintech 3.0 Era? An Error Correction Model Approach

Birgitta Dian Saraswati (), Widya Wahyuningrum and Angelita Titis Pertiwi ()
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Birgitta Dian Saraswati: Satya Wacana Christian University, Economics Development
Widya Wahyuningrum: Satya Wacana Christian University, Economics Development
Angelita Titis Pertiwi: Satya Wacana Christian University, Economics Development

A chapter in Proceedings of the International Conference of Economics, Business, and Entrepreneur (ICEBE 2022), 2023, pp 170-183 from Springer

Abstract: Abstract The Phillips curve explains that governments’ policies to control inflation will increase unemployment rates. However, financial technology (fintech) may lead to a positive relationship between inflation and unemployment. Fintech will arguably cause low inflation and unemployment rates. This study seeks to investigate the causal relationship between inflation and unemployment before and after the fintech 3.0 era and the impact of fintech 3.0 on the relationship between inflation and unemployment in Indonesia. Using the Granger causality and error correction model (ECM) tests to analyze time series data of 1985–2020, this research empirically demonstrates a one-way causality between inflation and unemployment during the fintech 3.0 implementation in Indonesia. Further, the ECM estimation indicates unemployment rate positively and significantly affects inflation rates in the long run. Thus, optimal use of fintech technology stabilizes prices and controls unemployment rates. Financial technology creates a cashless society that controls inflation.

Keywords: financial technology (fintech); unemployment rate; inflation; granger causality; error correction model (ECM) (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:spr:advbcp:978-2-38476-064-0_19

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DOI: 10.2991/978-2-38476-064-0_19

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