Determining the Phillips Curve and Okun's Law in Indonesia
I Made Suparta
Faculty of Economics and Business, Universitas 17 Agustus 1945 Surabaya, Indonesia.
https://doi.org/10.47191/jefms/v7-i6-64ABSTRACT:
This research aims to analyze the direct effect of inflation on growth, the direct effect of inflation on unemployment, the direct impact of economic growth on unemployment, and the indirect effect of inflation on unemployment through economic growth as an intervening variable. The analysis uses data from 34 provinces in Indonesia spanning the period from 2014 to 2022, utilizing Eviews for statistical processing. The Fixed Effects Model (FEM) was selected for Model 1, while the Random Effects Model (REM) was chosen for Model 2. This research found that inflation has a direct positive and significant effect on economic growth, inflation has a direct positive and significant impact on economic growth, economic growth has a direct negative and significant effect on unemployment, and indirectly, inflation has a negative and significant impact on unemployment when mediated by economic growth. The effect of inflation on unemployment, both directly and indirectly, follows the Phillips Curve, and the impact of economic growth on unemployment follows Okun's Law.
KEYWORDS:
Inflation, economic growth, unemployment, Phillips Curve, Okun's Law.
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