Abstract
Unemployment and inflation are major problems in macroeconomics. While solving the unemployment problem is a priority for some governments, for others it is bringing inflation under control. Unemployment and inflation surface are two undesirable problems for economies. Governments of countries implement monetary and fiscal policies suited to their aims to solve these problems. The Group 6 (G6) states are countries that have influence in steering the policies of international institutions. In this regard, this study investigated whether there is a relationship between the inflation rate and unemployment in nine randomly selected G6 countries (Australia, Brazil, Canada, France, Germany, Italy, the Russian Federation, Turkey, and the United Kingdom), using data from the period 2009–2017 and applying a panel causality test. According to the Granger causality test, there is a unidirectional causality from inflation rate to unemployment rate. According to the results of the research, bringing inflation under control in these countries is becoming a prior goal. As a result of the policies to bring the inflation under control, the demand for goods and services in the economy decreases. As the aggregate demand for goods and services in the economy decreases, the demand for the workforce decreases as well. In macroeconomic policies there is a relationship between inflation and unemployment. While unemployment increases inflation decreases and while unemployment decreases inflation increases. Our research results also support this. When inflation is intended to be brought under control, it causes unemployment in the economy.
Highlights
Countries implement certain policies to achieve the objectives they select
This study investigated whether there was a relationship between inflation rates (CPI) and unemployment rates (UR) in randomly selected Group 6 (G6) countries (Australia, Brazil, Canada, France, Germany, Italy, the Russian Federation, Turkey, and the UK) with a panel causality test
This study investigated whether there is a relationship between the inflation rate and the unemployment in nine randomly selected G6 countries (Australia, Brazil, Canada, France, Germany, Italy, the Russian Federation, Turkey, and the United Kingdom), using data from the 2009–2017 period with a panel causality test
Summary
Countries implement certain policies (such as monetary, fiscal, foreign receipts, and income policies) to achieve the objectives they select. Phillips revealed the changes in wages and unemployment rates in the UK from 1861 to 1957 The analysis he conducted indicated that there was a negative correlation between inflation and unemployment. The decisions made by the leaders of the G6 countries play a critical role in steering the policies of international institutions such as the World Bank, the International Monetary Fund, the OECD, the World Trade Organization, and the Northern Atlantic Treaty Organization This results from the economic power of these countries. A panel causality test was conducted using annual data for the period from 2009 to 2017 for Australia, Brazil, Canada, France, Germany, Italy, Russian Federation, Turkey, and the UK among the G6 countries, since the problems of unemployment and inflation are important for many countries. The test results revealed that there was a unidirectional causality between inflation and unemployment
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