Unemployment and Inflation Relationship in Nigeria: an Empirical Analysis of the Relationship Between Unemployment and Inflation in Nigeria from 1977 to 2009

This paper investigates the relationship between unemployment and inflation in the Nigerian economy between 1977 and 2009 through the application of Augmented Dickey-Fuller techniques to examine the unit root property of the series after which Granger causality test was conducted to determine causation between unemployment and inflation, then cointegration test was conducted through the application of Johansen cointegration technique to examine the long-run relationship between the two phenomenon, lastly ARCH and GARCH technique was conducted to examine the existence of volatility in the series. The results indicate that inflation impacted negatively on unemployment. The causality test reveals that there is no causation between unemployment and inflation in Nigeria during the period of study and a long-run relationship exists between them as confirmed by the cointegration test. ARCH and GARCH results reveal that the time series data for the period under review exhibit a high volatility clustering. The paper recommends the use of inflation/unemployment theory that is drawn from data sourced within the country and also improvement in the existing theories.