The Trade-Off Between Inflation And Unemployment In Namibia

The main aim of this study is to investigate the existence of trade-off relationship between inflation rate and unemployment rate in Namibian economy between 1991 and 2014 the perspective of Phillips curve by using the Ordinal Least Square(OLS) method. The results of Augmented Dickey-Fuller test shows that all variables are stationary at level I(0) and the integration test shows that they integrated at level I(0). The analysis result shows the negative relationship between inflation rate and unemployment rate in short-run as it was expected. But, in the long run the estimated results shows a positive relationship between inflation rate and unemployment rate in Namibia which is consistent with “Lucas Critique” where inflation policy would fail to reduce unemployment rate in long-run. The estimated results of M0(money supply) against inflation rate, also shows the expected outcome of a positive relationship between inflation and Money supply. It means that as money supply increases it will lead to increases in inflation rate in Namibia. The study also identify some of the factors that are contributing to high unemployment rate in Namibia some are like high rates of uneducated people or people without experience and youth and female being the one that contributing more to high unemployment rate in the country. The paper conclude that application of policy of increasing inflation rate in hoping to reduce unemployment in Namibia, will be useful in short-run, but in the long-run the Namibian policy makers should come up with other different polices to complement this policy of increasing inflation rate that will reduce unemployment rate in the country.