The Relationship between Inflation and Unemployment: Empirical Evidence in Vietnam

Abstract

Purpose: This article analyzes the relationship between inflation and unemployment in Vietnam from the first quarter of 2012 to the first quarter of 2025.
Design/methodology/approach: Research using a Structural Vector Autoregression (SVAR) model with long-run restrictions and an analysis of accumulated structural impulse response functions to examine the long-run interaction among shocks to inflation, actual unemployment, and the output gap. Dummy variables representing the Russia-Ukraine war and the Covid-19 pandemic were used to control for exogenous effects
Findings: The results showed that, in the short run, inflation is not only contemporaneous unaffected by unemployment, but also negatively impacts on unemployment. In the long run, unemployment has a negative effect on inflation, while the effect of inflation on unemployment does not persist.
Originality/value: The article's contribution provides empirical evidence that the trade-off between inflation and unemployment along the Phillips curve is only one-sided, with a negative impact of inflation on unemployment in the short run and a negative impact of unemployment on inflation in the long run.