Asian Journal of Economic Modelling

Revisiting the Phillips curve: An empirical study of the relationship between inflation and unemployment in North Africa

Allal Zahir, Hassan Rehaimi — Tue, 29 Apr 2025 00:00:00 -0500

This study examines the empirical relevance of the Phillips curve in North African economies (Morocco, Algeria, Tunisia, Egypt, Libya, and Mauritania) over the period 1991–2023. Given the region’s unique structural characteristics and socio-economic constraints, it investigates whether the theoretical negative relationship between inflation and unemployment holds. Using a Vector Error Correction Model (VECM), the analysis explores both short-term and long-term dynamics between these two variables, based on macroeconomic data from international financial institutions and national statistical agencies. The findings reveal a significant positive correlation in the long run, where a 1% increase in unemployment is associated with a 1.06% rise in inflation. These results challenge the conventional applicability of the Phillips curve in economies characterized by widespread labor informality, high exposure to external shocks, and inflationary pressures largely driven by external factors. The study highlights the need to reassess macroeconomic models to better reflect the structural realities of North African economies. It also underscores the importance of adapting monetary and fiscal policies to address inflationary pressures while fostering employment growth. From a policy perspective, structural reforms should be prioritized to enhance economic resilience and ensure more effective inflation and labor market management in the region.

Investigating the effects of policy interest rate on the Thai economy in the FAVAR framework

Adirek Vajrapatkul, Pinmanee Vajrapatkul — Fri, 23 May 2025 00:00:00 -0500

The policy rate is a crucial monetary policy tool used by central banks to control economic conditions. Its main channel works via a transmission mechanism in which shocks to the policy rate proliferate through the financial system, which then affects the real economy. This study looks at how monetary policy affects the Thai economy and how it works by using a Factor-Augmented Vector Autoregressive (FAVAR) model, which can include both visible and hidden factors in the analysis, unlike traditional VAR methods. To achieve the objective of this study, monthly data from the Bank of Thailand database for the period between January 2011 and December 2023 were collected and analyzed using Principal Component Analysis, Vector Autoregressive technique, Granger causality tests, and impulse response analysis. The results indicate that interest rate hikes have temporary adverse effects on consumer confidence, retail sales, and asset prices. In addition, the findings show the interplay between interest rate shocks and labor markets, represented by worker outflow, employment levels, and job vacancies. The results also reflect the effective transmission of monetary policy through the money market channel, as market interest rates were aligned with the policy rate shock. These results suggest that monetary policy should be implemented in a balanced manner while considering the interconnections between various aspects of the economy. These results justify some supportive fiscal and labor market policies to promote consumption and reduce the adverse effects of monetary policy tightening.

Macroeconomic determinants of inclusive growth in South Africa: An application of the autoregressive distributed model

Fri, 23 May 2025 00:00:00 -0500

Despite South Africa’s economy being more advanced than most emerging African economies, it remains the most inequitable country in the world, revealing that regardless of the growth strides, the benefits of growth are barely equitably distributed among the different society groups in the country. Literature indicates that while economic growth is essential, it is insufficient for improving living standards for many South Africans. Against this background, the study examines the factors driving inclusive economic growth in the country using macro data from 1991-2020. A model based on the Social Opportunity Function was estimated to link the measure of inclusive growth and its determinants in the study. The ARDL bounds testing approach to cointegration was employed to evaluate the effect of the different variables employed in the study on inclusive growth. The results show a long-term positive impact of initial income levels, foreign direct investment (FDI), population growth, and trade on inclusive growth, while gross fixed capital formation and inflation negatively affect inclusivity. These findings imply that the government must continue to address the challenges of unequal access to opportunity and skewed income distribution in the country. Moreover, authorities should pursue policies to improve macroeconomic stability to increase FDI inflow and eliminate barriers that prevent it. This will foster inclusiveness in economic growth.