NAIRU IN UZBEKISTAN: A TRADE-OFF BETWEEN INFLATION AND UNEMPLOYMENT (2016-2022)

Abstract

Economic analysts frequently encourage the Fed to utilize unemployment rates or wages growth rates as leading measures of inflation and as indicators of whether to loosen or tighten monetary policy. The theory behind this strategy is based on current Keynesian macroeconomics, notably the Phillips curve and the nonaccelerating inflation rate of unemployment (NAIRU). The main purpose of this study to analyze the trade-off between inflation and unemployment of Uzbekistan and calculate NAIRU through Phillips curve approach during 6 years quarterly data from 2016-2021. In this study Hodrick-Prescott filter (HP) filter is used to calculate NAIRU and Ordinary Least Squares (OLS) model to determine the relationship between inflation and unemployment rate. VIF test is used to check collinearity or multicollinearity of determinants and result showed that there is not any collinearity between variables. OLS model indicated that there are positive and significant trade-off between inflation and unemployment, while GDP and inflation showed negative and insignificant relationship.