Abstract

The paper examines the existence and the stability of Phillips relations for Nigeria, using time series data from 1970 to 2010. Graphical, Augmented Dickey Fuller and Philip Peron unit root tests were employed to check for stationarity. ARDL and DOLS general to specific approaches to cointegration have been used to explore the Philips relations and ECM to understand short run dynamics. The estimates shows that relation between the change in inflation rate and the unemployment rate is theoretically negative in the short run—a low unemployment rate leads to an increase in the inflation rate and therefore an acceleration of the price level- however, the relation became non existence in the long run with positive relationship between inflation and unemployment signifying stagflation. Meanwhile, recursive residual, CUSUM and CUSUMsq tests confirm a stable Philips relation.

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