Title:
DO TRADE-OFF INFLATION AND UNEMPLOYMENT HAPPEN IN INDONESIA?

Authors:
Erni Panca Kurniasih, Metasari Kartika, Indonesia

Abstract:

This study aims to analyze the relationship between inflation and unemployment in Indonesia. This study tries to reexamine whether the Phillips theory, which states the trade-off between inflation and unemployment, occurred in Indonesia over the past 30 years (1988-2017). Data were analyzed using an error correction model (ECM) to see the short-term and long-term relationship between inflation and unemployment. The study found that in the short term, unemployment has a positive effect on inflation but is not significant, meaning there is no trade-off between unemployment and inflation in Indonesia. But in the long run, unemployment has a negative and significant effect on inflation, meaning there is a trade-off between unemployment and inflation where if unemployment increases, the consequences will reduce the rate of inflation and vice versa if unemployment falls, inflation will increase.