Abstract:
The three major economic indicators such as inflation, unemployment and interest
‘it plays an important role in the economy of any country in terms of sustainable
economic development. Economic policymakers should be taken into consideration
all the relationship among these variables in order to maintain healthy economic
progress. But, the long-term progress of the Sri Lankan economy is destabilized. The
linkage among these variables and the impact on each other are very important for
(developing countries such as Sri Lanka to overcome the destabilized hurdles. Hence, the study intends to investigate the impact of unemployment and interest rate
on inflation in Sri Lanka. This study also analyses the short and the long-run
the relationship among these there variables. Phillip’s relationship between the variables
inflation and unemployment also is discussed in detail.
fifty-three years of annual data for the period of 1953- 2015 of the variable inflation,
\nemployment, interest rate, money supply (M2), and government expenditure used
for the analysis. Parametric and nonparametric approaches have been employed in
this study. The Autoregressive Distributed Lag (ARDL) model with co-integration—
\cchnique has been employed to find the short and the long-run relationship of the
variable. The statistical package e-views 9.0 and Microsoft excel have been used for
the analysis.
The study reveals that unemployment negatively impacts on ‘inflation in the short and
long run in Sri Lanka, which is statistically significant. Further, the study revealed
that Phillip’s relationship between inflation and unemployment exists in Sri
|.ankan economy. The interest rate also negatively impacts inflation in the short
run and positive impacts in the long run. The results are statistically significant at
the live percentage confidence level and it shows theoretically the same scenario in Sri Lanka
(00.
This study recommends that the relationship between the variables should be noted
und utilized at optimum level in order to achieve sustainable economic development
in Sri Lanka.
