Abstract

The rate of inflation is a crucial macroeconomic indicator which could impact on unemployment, economic stability and economic performance. There has been much attention paid to the relationship between inflation and unemployment in the field of macroeconomics research, though its nature and significance may differ from country to country and from economic condition to economic condition. In this study, the effects of inflation on the unemployment rate in Afghanistan were explored on the basis of time series data from 2001 to 2025 with annual frequency. Data on the relevant variables were extracted from the World Bank's World Development Indicators data. The study design is quantitative, secondary data and the method used for the analysis of the study is econometric method, which is used to study the relationship between inflation and unemployment. Initially, Augmented Dickey-Fuller test was performed to test whether the variables were stationary or not, and the result showed that the variables were non-stationary at level. As such, the Auto-regressive Distributed Lag model was used to analyze the possible short run and long run relationships between inflation and unemployment. Further, the stability of the estimated model was tested using the Cumulative Sum test during the study period. The results show that inflation was positive in the first year, which implies that inflation has a positive relationship with unemployment in the short run, but is not significant. In addition, long-term results indicate that inflation is not statistically significant in affecting unemployment in Afghanistan. The results point to the possibility of other economic and structural factors influencing the inflation–unemployment nexus in Afghanistan. The study finds that inflation is not a major long-run influence on unemployment and suggests that employment policies should take into account structural, economic and labor market influences in addition to the role of inflation management.

Keywords

Afghanistan ARDL Effects Inflation Unemployment