Abstract:
A.W.Phillips (1958) popularized the Phillips curve by drawing a
relationship between the rate of inflation and the rate of unemployment in the United
Kingdom from 1861 to 1957. In the 1970s, the relation broke down for both US and
OECD countries. Actually, it clearly depends on the nature and structure of the
economy. The main purpose of this study is to analyze the applicability of Phillips
Curve to Bangladesh using the most recent macroeconomic time series data from
1995-96 to 2009-2010 for around 14 years. The Johansen multivariate Cointegration
test indicates that long run Phillips curve does not exist in Bangladesh. Again,
Granger causality test suggests a unidirectional positive causality from rate of
inflation to rate of unemployment that is totally the opposite picture of the expected
relationship in Phillips curve. The important finding is that stagflation is evident in
Bangladesh.
