An Empirical Analysis of the Relationship Between Inflation and Unemployment in Ethiopia

Melkamu Wondimu; Benedict Huruma Peter Mwakabungu; Deresa Tolesa

doi:doi:10.11648/j.ijber.20251403.16

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An Empirical Analysis of the Relationship Between Inflation and Unemployment in Ethiopia

Melkamu Wondimu^*

, Benedict Huruma Peter Mwakabungu

, Deresa Tolesa

Published in International Journal of Business and Economics Research (Volume 14, Issue 3)

Received: 30 April 2025 Accepted: 19 May 2025 Published: 23 June 2025

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Abstract

In this study the empirical relationship between inflation rate and unemployment rate is investigated using annual time series data collected for the period 1991/92-2020/21 for Ethiopia. To accomplish this study, we employed a vector error correction econometric model, Granger causality, and variance decomposition tests. The findings reveal that the unemployment rate has a positive and statistically significant impact on the inflation rate in the long run, justifying that the Phillips Curve hypothesis does not hold for Ethiopia. Further results from the causality test confirms, the absence of causality running between the inflation rate and unemployment rate. To forecast error variance of inflation rate because of a unit shock of all variables included in the model—foreign aid, money supply, and unemployment rate—variance decomposition tests were undertaken. Thus, policies that are intended to boost the productive capacities of an economy by appropriate monetary and fiscal policy, and create job opportunities to bring the balance between the demand and supply of goods and services are better if implemented in a proper manner.

Published in	International Journal of Business and Economics Research (Volume 14, Issue 3)
DOI	10.11648/j.ijber.20251403.16
Page(s)	128-139
Creative Commons	This is an Open Access article, distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution and reproduction in any medium or format, provided the original work is properly cited.
Copyright	Copyright © The Author(s), 2025. Published by Science Publishing Group

Keywords

Inflation Rate, Unemployment Rate, Vector Error Correction Model, Phillips Curve

References

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APA Style

Wondimu, M., Mwakabungu, B. H. P., Tolesa, D. (2025). An Empirical Analysis of the Relationship Between Inflation and Unemployment in Ethiopia. International Journal of Business and Economics Research, 14(3), 128-139. https://doi.org/10.11648/j.ijber.20251403.16

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ACS Style

Wondimu, M.; Mwakabungu, B. H. P.; Tolesa, D. An Empirical Analysis of the Relationship Between Inflation and Unemployment in Ethiopia. Int. J. Bus. Econ. Res. 2025, 14(3), 128-139. doi: 10.11648/j.ijber.20251403.16

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AMA Style

Wondimu M, Mwakabungu BHP, Tolesa D. An Empirical Analysis of the Relationship Between Inflation and Unemployment in Ethiopia. Int J Bus Econ Res. 2025;14(3):128-139. doi: 10.11648/j.ijber.20251403.16

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@article{10.11648/j.ijber.20251403.16,
  author = {Melkamu Wondimu and Benedict Huruma Peter Mwakabungu and Deresa Tolesa},
  title = {An Empirical Analysis of the Relationship Between Inflation and Unemployment in Ethiopia
},
  journal = {International Journal of Business and Economics Research},
  volume = {14},
  number = {3},
  pages = {128-139},
  doi = {10.11648/j.ijber.20251403.16},
  url = {https://doi.org/10.11648/j.ijber.20251403.16},
  eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.ijber.20251403.16},
  abstract = {In this study the empirical relationship between inflation rate and unemployment rate is investigated using annual time series data collected for the period 1991/92-2020/21 for Ethiopia. To accomplish this study, we employed a vector error correction econometric model, Granger causality, and variance decomposition tests. The findings reveal that the unemployment rate has a positive and statistically significant impact on the inflation rate in the long run, justifying that the Phillips Curve hypothesis does not hold for Ethiopia. Further results from the causality test confirms, the absence of causality running between the inflation rate and unemployment rate. To forecast error variance of inflation rate because of a unit shock of all variables included in the model—foreign aid, money supply, and unemployment rate—variance decomposition tests were undertaken. Thus, policies that are intended to boost the productive capacities of an economy by appropriate monetary and fiscal policy, and create job opportunities to bring the balance between the demand and supply of goods and services are better if implemented in a proper manner.
},
 year = {2025}
}

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TY  - JOUR
T1  - An Empirical Analysis of the Relationship Between Inflation and Unemployment in Ethiopia

AU  - Melkamu Wondimu
AU  - Benedict Huruma Peter Mwakabungu
AU  - Deresa Tolesa
Y1  - 2025/06/23
PY  - 2025
N1  - https://doi.org/10.11648/j.ijber.20251403.16
DO  - 10.11648/j.ijber.20251403.16
T2  - International Journal of Business and Economics Research
JF  - International Journal of Business and Economics Research
JO  - International Journal of Business and Economics Research
SP  - 128
EP  - 139
PB  - Science Publishing Group
SN  - 2328-756X
UR  - https://doi.org/10.11648/j.ijber.20251403.16
AB  - In this study the empirical relationship between inflation rate and unemployment rate is investigated using annual time series data collected for the period 1991/92-2020/21 for Ethiopia. To accomplish this study, we employed a vector error correction econometric model, Granger causality, and variance decomposition tests. The findings reveal that the unemployment rate has a positive and statistically significant impact on the inflation rate in the long run, justifying that the Phillips Curve hypothesis does not hold for Ethiopia. Further results from the causality test confirms, the absence of causality running between the inflation rate and unemployment rate. To forecast error variance of inflation rate because of a unit shock of all variables included in the model—foreign aid, money supply, and unemployment rate—variance decomposition tests were undertaken. Thus, policies that are intended to boost the productive capacities of an economy by appropriate monetary and fiscal policy, and create job opportunities to bring the balance between the demand and supply of goods and services are better if implemented in a proper manner.

VL  - 14
IS  - 3
ER  -

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Author Information

Melkamu Wondimu

Department of Economics, Mattu University, Metu, Ethiopia

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http://orcid.org/0000-0002-9557-1310
Benedict Huruma Peter Mwakabungu

Department of Business Administration, College of Business Education, Dodoma, Tanzania

Contact Email

http://orcid.org/0000-0001-5226-2190
Deresa Tolesa

Department of Economics, Mattu University, Metu, Ethiopia

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Plain Text BibTeX RIS

APA Style

Wondimu, M., Mwakabungu, B. H. P., Tolesa, D. (2025). An Empirical Analysis of the Relationship Between Inflation and Unemployment in Ethiopia. International Journal of Business and Economics Research, 14(3), 128-139. https://doi.org/10.11648/j.ijber.20251403.16

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ACS Style

Wondimu, M.; Mwakabungu, B. H. P.; Tolesa, D. An Empirical Analysis of the Relationship Between Inflation and Unemployment in Ethiopia. Int. J. Bus. Econ. Res. 2025, 14(3), 128-139. doi: 10.11648/j.ijber.20251403.16

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AMA Style

Wondimu M, Mwakabungu BHP, Tolesa D. An Empirical Analysis of the Relationship Between Inflation and Unemployment in Ethiopia. Int J Bus Econ Res. 2025;14(3):128-139. doi: 10.11648/j.ijber.20251403.16

Copy | Download

@article{10.11648/j.ijber.20251403.16,
  author = {Melkamu Wondimu and Benedict Huruma Peter Mwakabungu and Deresa Tolesa},
  title = {An Empirical Analysis of the Relationship Between Inflation and Unemployment in Ethiopia
},
  journal = {International Journal of Business and Economics Research},
  volume = {14},
  number = {3},
  pages = {128-139},
  doi = {10.11648/j.ijber.20251403.16},
  url = {https://doi.org/10.11648/j.ijber.20251403.16},
  eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.ijber.20251403.16},
  abstract = {In this study the empirical relationship between inflation rate and unemployment rate is investigated using annual time series data collected for the period 1991/92-2020/21 for Ethiopia. To accomplish this study, we employed a vector error correction econometric model, Granger causality, and variance decomposition tests. The findings reveal that the unemployment rate has a positive and statistically significant impact on the inflation rate in the long run, justifying that the Phillips Curve hypothesis does not hold for Ethiopia. Further results from the causality test confirms, the absence of causality running between the inflation rate and unemployment rate. To forecast error variance of inflation rate because of a unit shock of all variables included in the model—foreign aid, money supply, and unemployment rate—variance decomposition tests were undertaken. Thus, policies that are intended to boost the productive capacities of an economy by appropriate monetary and fiscal policy, and create job opportunities to bring the balance between the demand and supply of goods and services are better if implemented in a proper manner.
},
 year = {2025}
}

Copy | Download

TY  - JOUR
T1  - An Empirical Analysis of the Relationship Between Inflation and Unemployment in Ethiopia

AU  - Melkamu Wondimu
AU  - Benedict Huruma Peter Mwakabungu
AU  - Deresa Tolesa
Y1  - 2025/06/23
PY  - 2025
N1  - https://doi.org/10.11648/j.ijber.20251403.16
DO  - 10.11648/j.ijber.20251403.16
T2  - International Journal of Business and Economics Research
JF  - International Journal of Business and Economics Research
JO  - International Journal of Business and Economics Research
SP  - 128
EP  - 139
PB  - Science Publishing Group
SN  - 2328-756X
UR  - https://doi.org/10.11648/j.ijber.20251403.16
AB  - In this study the empirical relationship between inflation rate and unemployment rate is investigated using annual time series data collected for the period 1991/92-2020/21 for Ethiopia. To accomplish this study, we employed a vector error correction econometric model, Granger causality, and variance decomposition tests. The findings reveal that the unemployment rate has a positive and statistically significant impact on the inflation rate in the long run, justifying that the Phillips Curve hypothesis does not hold for Ethiopia. Further results from the causality test confirms, the absence of causality running between the inflation rate and unemployment rate. To forecast error variance of inflation rate because of a unit shock of all variables included in the model—foreign aid, money supply, and unemployment rate—variance decomposition tests were undertaken. Thus, policies that are intended to boost the productive capacities of an economy by appropriate monetary and fiscal policy, and create job opportunities to bring the balance between the demand and supply of goods and services are better if implemented in a proper manner.

VL  - 14
IS  - 3
ER  -

Copy | Download