Impact of Fluctuations in Inflation Rate on unemployment in Algeria: A Svar Approach

Abstract Subject and purpose of work This article aims to analyze the relationship between inflation rates (INF) and unemployment rates (UR) in the Algerian economy during the period 1970-2021 by studying the extent to which the unemployment rate responds to shocks and structural changes that occur at the level of the inflation rate. Materials and methods Use the structural VAR (SVAR) approach, based on RStudio output. Results The estimation results provide strong evidence in favor of the VAR (SVAR) approach. Conclusions The application of Impulse–Response Functions (IRFs) and analysis of variance (ANOVA) reveals that the occurrence of a structural shock in the inflation rate (INF) by one standard deviation leads to a positive effect on the unemployment rate (UNEM) at the beginning of the first period, and then it gradually decreases to become almost nonexistent. Therefore, the improvement in Consumer Price Index (CPI) leads to the absorption and reduction of unemployment rates (UR) to achieve stability and confirm the existence of the Phillips curve.