Testing Phillips Curve to Examine the Inflation Rate regarding Unemployment Rate, Annual Wage Rate and GDP of Philippines: 1950-2017

Abstract

This paper investigates whether Phillips curve is identified or not in Philippines during 1950-2017 regarding inflation rate, unemployment rate, annual wage rate and GDP (Gross Domestic Products). An OLS (Ordinary Least Square) model has been developed in accordance with Phillips curve to test the long run relationship among the said variables. ADF (Augmented Dicky-Fuller) unit root test is used to test the stationary state of data. Johansen long run co integration model estimated that there is a long run relationship among the variables. To test the stability of this model, CUSUM (Cumulative Sum) test, CUSUMQ (Cumulative Sum of Squares) test and an ECM (Error Correction Model) have been used. Government of Philippines need to implement policy tools in such a way that GDP and annual wage rate positively influence the unemployment rate and inflation rate of Philippines.