Non-linearity in the Phillips curve: evidence from Nigeria

Abstract

PurposeThis study reinvestigates the validity of the Phillips curve in Nigeria for the period 1980–2020 by considering the asymmetric nexus between unemployment and inflation.Design/methodology/approachThe nonlinear autoregressive distributed lag (NARDL) technique was used to decompose the unemployment variable into two components: tight and loosened labour markets.FindingsThe empirical outcome shows that unemployment has a significant negative effect on inflation when the labour market is tight and a weakly negative and significant effect on inflation when the labour market is loose. The study confirms an asymmetric Phillips curve in Nigeria since the positive (tight) unemployment rate exerts a greater effect on inflation than the negative (loosened) unemployment rate.Practical implicationsThe findings of this study have important implications for implementing monetary policy in Nigeria.Originality/valueTo the best of the authors’ knowledge, this is the first study to investigate the existence of a nonlinear Phillip curve in Nigeria.

A new perspective on the asymmetric Phillips curve: Fresh evidence from ECOWAS member countries

“…This finding validates Phillip's (1958) theoretical argument that inflation increases steeply when unemployment is low, and the change in inflation becomes flat at a high unemployment rate. This outcome is congruent with the findings of Kumar and Orrenius (2015), Nalewaik (2016), Albuquerque and Baumann (2017), Bryne and Zekaite (2017), Bishop andGreenland (2021), andOnatunji et al (2023), who discovered similar findings in their investigations. Additionally, the results show that positive (rising) unemployment has a significant negative effect on inflation, while negative (declining) unemployment has an insignificant negative impact on inflation in Cape Verde, Gambia, and Guinea-Bissau.…”

“…The empirical outcomes indicated that, at a specific threshold, the relationship between the variables weakens during periods of rising unemployment but becomes stronger as the labour market strengthens. Similarly, Onatunji et al (2023) investigated the asymmetric Phillips curve in Nigeria spanning 1980-2020 using the non-linear ARDL procedure. The authors discovered that declining unemployment spurs rising inflation, while increasing unemployment leads to low inflation in the country.…”