Analysis Of The Nonlinear Relationship Among Inflation,Unemployment And Economic Growth In Kenya

Unemployment and inflation engender pervasive and disenfranchising long term effects on growth and development,and undesirably affect the welfare.Inflation may boost economic activities when modestly increasing,but eroded when highly inflationary as very low inflation insignificantly ignites but stagnates economic activities.Unemployment as the foci of economic stabilization,has wide ranging and intensified turbulence on both output,labor market and welfare,besides complicating the dilemma of the policy making process.Their uncertainties,persistence and inertial effects heightens the clout of harm and engender continued negative externalities to GDP.With this,unemployment and inflation still remains a policy concern around the globe with debate on how to maintain them low against high output remaining open.This paper joined the debate to find out their stance in Kenya.Their stance not limited to the relationship and impact to the welfare of people and economy still require profound attention for Kenya.Consequently,revelations by studies delving the discourse have limitedly investigated the relationship or impact and doing this based on either linear format or incorrectly capturing the nonlinearities.And,some have concerned single-country or panel effects whereas a section has combined developing and industrialized nations.They have typically postulated confounding results and mostly short sighted for significant policy conclusions.In Kenya,despite its highest ranking economic growth status in East Africa,it still postulates high and upward trending rates of inflation and unemployment versus pitiable GDP productivity.In this light,there is need to find out the underlain actual relationship,causality and determining factors,not forgetting,country-based studies have insignificantly scored this concern while those that have attempted any way venture reported inadequate findings for consistent policy conclusion.Basing on this,need for renewing the analysis of the underlain relationship amid the three real factors for Kenya finds significance.The current study renewed this studies and investigated the relationship between inflation,unemployment and output to inform their exact relationship and the direction of causality,and the likely welfare implication.The study is significant in various ways.First,it analyses the trade-off relationship between inflation,unemployment and output normally important in simplifying the dilemma regarding the balancing of the macroeconomic environment.Second,the information investigated regarding the uncertainty,persistence and dynamic behaviors by the three variables is significant in modelling risks and uncertainties in financial development,labor trends and output growth.Thirdly,the nonlinear information over regimes is helpful to account for the structural changes or proper adjustment programs which would stabilize the macroeconomic dynamics and(fourthly),the asymmetric information significantly provides alleviation insights/measures critical in minimizing the skewness of the labor market.The findings concluded that;(1)the variables trades off in respect to the Phillips curve coefficient and the Okun law theorem.(2)Inflation is volatile and inducing uncertainty while unemployment is inertial and persistent,and all complicating the behavioral dilemma for policy targets.(3)The variables nonlinearly respond and behave in the long run with variegated response over different thresholds and regimes.(4)The three variables asymmetrically relate in the long run and in the business cycle while policy factors like government expenditure,export activities,trade openness,minimum wage rate,tax burden,and industrial production may be used to target the skewness in the labor market.The study therefore suggests formulation and implementation of policies which are likely to increase inflation to sustainable levels and lower unemployment against increasing growth and productivity;minimize their uncertainties,persistence and dynamics;offset their nonlinearities but heighten their asymmetric positive externalities;and reduce the skewness of the labor market.