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.

Asian Journal of Economic Modelling

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