Measuring and Analyzing the Interchangeable Relationship between Inflation and Unemployment in Iraq: Phillips Curve

Inflation and unemployment are key macroeconomic variables considered by governments and policymakers. The relationship between these two variables is crucial for understanding a country's economic performance, as controlling and reducing both inflation and unemployment are among the primary indicators for the economic stability in the country. The main objective of this article is to identify both short- and long-term Interchangeable Relationship between the inflation rate and unemployment rate in Iraq using the Phillips Curve framework, with an application of the ARDL-ECM model based on secondary data from 2003 to 2023. The study's key finding is an inverse relationship between the unemployment rate and the inflation rate. However, the impact of the unemployment rate on inflation is stronger in both the short and long run than the reverse. In the short term, a one-unit increase in the unemployment rate leads to a decrease in the inflation rate by 3.8369. Conversely, a one percent increase in the inflation rate results in a decrease in the unemployment rate by 0.0017. In the long term, a one-unit increase in the unemployment rate causes the inflation rate to rise by 0.0118, whereas a one percent increase in the inflation rate leads to a decrease in the unemployment rate by 0.0019. To effectively reduce both inflation and unemployment in line with population growth, the government and relevant authorities should implement a strategic plan focused on job creation and investment promotion. Expanding the supply of goods and services can help lower prices and curb inflation, while fostering investment can generate employment opportunities, thereby reducing the unemployment rate.