Relationship between inflation and unemployment: an application of the Phillips curve for Ecuador, Latin America and the World

Abstract

The objective of this research is to analyze the relationship between inflation and unemployment through the Phillips (1958) curve for Ecuador, Latin America and the World in the period 1991-2015 using time series data taken from the database made by The World Bank (2016). In order to fulfill this objective we have developed several econometric models that relate these theoretical variables, and the results for our country show that in the analysis period there is no negative relation as the theory indicates, but a positive relation between The variables mentioned above, so that control variables were added that capture the structural characteristics of the Ecuadorian economy as: consumption, monetary mass and public expenditure; Although the last two variables in our model were statistically non-significant, practically in the Ecuadorian context are of great relevance to be able to explain the inflation rate. One implication of economic policy derived from this research is that it should focus on controlling stable inflation and keeping unemployment at low levels, using as an instrument the direct controls to regulate economic sectors and thus maintain price stability in recessive times.