REVISITING THE PHILLIPS CURVE: UNDERSTANDING THE UPWARD CURVE IN THE BANGLADESH CONTEXT
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The Phillips curve reveals a negative association between inflation and unemployment. This research examines the relevance of the Phillips curve notion within Bangladesh's economy, utilizing yearly time series data spanning from 1991 to 2023. The findings show that the Phillips curve concept is not applicable to Bangladesh during the study periods, with an upward-sloping Phillips curve observed instead. The study utilizes a variety of statistical and econometric methodologies to perform its research. The Johansen co-integration analysis identifies a long-run relationship between unemployment and inflation, while Granger causality analysis demonstrates a one-way causal effect from unemployment to inflation. Additionally, the Fully Modified Ordinary Least Squares (FMOLS) approach indicates that unemployment exerts a strong and statistically significant positive effect on inflation. The study suggests that stagflation, filling budget deficits by borrowing, sharp rises in fuel prices, high interest rates, cost-push inflation, and the unequal burden of inflation and Covid-19 are the primary reasons for the upward-sloping Phillips curve in the observed periods. Based on the findings, the study suggests that implementing robust social safety programs alongside effective fiscal and monetary policies could serve as the most effective solutions to control inflation. Conversely, motivating educated youth to engage in self-employment, implementing a more adaptable bank loan system to support entrepreneurship, and enhancing both public and private investments will lead to a rise in employment opportunities in Bangladesh.
JEL Classification Code: E24, E31, C22, O53.
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