THE PHILLIPS RELATIONSHIP IN BRICS COUNTRIES: A SECOND GENERATION PANEL CAUSALITY ANALYSIS

Abstract

Inflation and unemployment, which are the main indicators of economies, are also primary stability targets. These variables form the focal point of macroeconomic policies. This study aims to test the validity of the Phillips Curve in BRICS countries. Phillips Curve in the original A.W.H. It emerged as the product of an empirical study conducted by Phillips in 1958. According to Phillips's 1958 study, the inflation-unemployment trade-off is considered among the most basic principles of economics. In this context, the study aims to investigate the causal relationship between inflation and unemployment by making use of the 1997-2018 annual data of the BRICS countries. The causality relationship between the variables was tested using the second generation causality test, the Konya (2006) Causality Test. Empirical findings have shown that there is a bidirectional causality between the inflation rate and the growth rate according to the Panel Fisher probability values. A unidirectional causality running from inflation to unemployment rate was found between the inflation rate and the unemployment rate. No causality was found between unemployment rate and growth rate. According to the individual cross-section results, a bidirectional causality relationship was found between inflation and unemployment in Russia. In South Africa, a unidirectional causality was found from inflation to unemployment. On the other hand, a causality running from unemployment to inflation was found in India and China. Therefore, it was seen that the validity of the Pihillips Curve was supported only in Russia.