The analyse of relationships between unemployment and inflation: Application on G8 countries

The aim of this study is to deal with the relationship between unemployment and inflation in terms of causality in G8 countries. Before examining this relationship, the phenomena of unemployment and inflation that are some of the main problems of many economies are defined. Furthermore, reasons, kinds, measurements and assumptions of economic theory about these problems are also emphasized. In the next part, historical process of unemployment-inflation relationship and approaches of schools explaining this relation in economical literature are mentioned. In the last part of the study, gathering the data of the G8 countries including 1993:1?2009:4 periods, the relationship between unemployment and inflation of these countries is analysed with Granger causality test. According to analysis results, it is concluded that there is a two-way causality in G8 countries and unemployment causes inflation or vice versa.