Can the Phillips curve be applied in selected European countries today?

Abstract

The Phillips curve is one of the most important economic postulates, which indicates inversion between inflation rate and unemployment rate. Even though it has been empirically confirmed many times, in past research there has been evidence of rejecting it in some countries. The aim of this research is to analyse whether the Phillips curve exists in selected European countries: Bulgaria, Greece, Slovenia and Romania, during time period Q1 2009-Q3 2021 and to conclude if there are any differences between countries that are using Euro as national currency and those that are not. Panel analysis and choosing the appropriate model has led to the conclusion that there is a statistically significant inverse correlation between these two variables, which confirmed the presence of the Phillips curve. When analysing countries separately, results differ between them-the strongest inverse correlation is present in Greece and it is followed by Bulgaria. In Slovenia, correlation is slightly negative and in Romania slightly positive, pointing to the conclusion that correlation in these two countries is so weak, that it can be considered that it does not exist. Since obtained results differ between observed countries, this makes correlation between inflation rate and unemployment rate an important indicator for policy makers of individual countries to take into consideration when making decisions for future economic policy.

Keywords

• the phillips curve
• inflation rate
• unemployment rate