Does inflation-unemployment trade-off exist in India

Abstract

The hypothesis of extended Philips Curve is examined in the present paper using the Indian data over the period 1950-51 to 1984-85. The empirical evidence does not suggest any substantial trade-off between inflation and unemployment even in the short run in the LDCs like India. The labour markets in the LDCs have such characteristics which bring them very close to the Keynesian aggregate supply curve in the short run. The formation of inflationary expectation in the study is based on adaptive expectations. The findings of the study have important implication for the choice of the strategy to deal with adverse supply shocks in LDCs.