Unemployment's Role in Shaping Inflation in Pakistan: A Detailed Examination through Time Series Data

Abstract

This study uses time series data from 1990 to 2025 to investigate the influence of unemployment and inflation rates in Pakistan. Employing econometric and statistical techniques, the study first checks the stationarity of the data by applying the Augmented Dickey-Fuller test. This test verifies the stationarity of the variables. The results indicate that all variables are integrated in order I(0) or I(1), prompting the researcher to use the ARDL technique. The variables under consideration include unemployment, population growth, household data, domestic credit to the private sector, and the current account balance. Literature suggests that the relationship between inflation and unemployment is inverse. In the long-term, the relationship between inflation and unemployment and domestic credit to the private sector is negative, whereas population growth, household data, and the current account balance have a positive relationship. The empirical results of this study reveal that inflation and unemployment are statistically significant. Research results show that both unemployment and inflation rates have a detrimental impact on economic growth.