Research on the Relationship Between Inflation, GDP and Unemployment Rate

Abstract

Inflation in the United States has continued to rise since the second quarter of 2021, and the Fed's aggressive monetary tightening policy has sparked market concerns. This paper attempts to apply the Vector Autoregression (VAR) model to study the interaction mechanisms between GDP, inflation and unemployment rate between the first quarters of 2012 and 2022 in the United States. Try to disentangle the effects of shocks emanating from each source. As a result, the three macroeconomic factors have a specific causal relationship. GDP and unemployment rate can predict inflation one way, while GDP and unemployment can predict each other. The shocks of GDP and inflation are mainly derived from their own changes, while the shocks of unemployment are mainly derived from changes in GDP.