Does monetary announcement affect Phillips Curve?: An empirical study from Malaysia

Abstract

Macro economist over the years have camped their argument on the tradeoff between inflation and unemployment on an economy. As monetary announcement of an economy has an important influence on both inflation and unemployment, this paper reviews the existing literature to find out the relation between inflation and unemployment rate in Malaysia with special emphasis given on monetary announcement over a period of 1980-2010. The relation between inflation and unemployment is special interest for economists for long period. It seems quite surprising that not much studies are reported on the influence of monetary announcement on either inflation or unemployment. Hence, this research not only looks into the tradeoff between inflation and unemployment but also look into the impact of monetary announcement in an economy. In this context, this research tries to look into the shape of Phillips curve in Malaysian economy and how monetary announcement of Malaysia influence on Phillips curve. This study can help the policy makers to come up realistic policy to manage country’s inflation and unemployment rate with the help of monetary policy.