INFLATION AND UNEMPLOYMENT IN SLOVAKIA: IS THE PHILLIPS CURVE STILL RELEVANT?

Abstract

This article investigates the validity of the Phillips curve in the current economic conditions of the Slovak Republic. The Phillips curve, which suggests an inverse relationship between inflation and unemployment, has been one of the most important concepts in macroeconomics since its creation. However, its role and relevance in modern economies have been questioned, primarily due to various factors such as monetary policies, globalization, and structural changes in labor markets. The analysis focuses on the Slovak economy. Examined was the relationship between inflation and unemployment after the country joined the European Union and adopted the euro.  By utilizing multiple correlation analysis, the study assesses the strength, direction, and statistical significance of the relationship in recent years. The results suggest that, while the Phillips curve remains valid in the Slovak economy, the strength of the correlation has diminished compared to the period when the theory was first introduced. This decline in the relationship can be attributed to various factors, including the centralization of monetary policy under the European Central Bank, changes in labor market dynamics, and external economic shocks. These findings imply that policymakers should reconsider relying solely on traditional inflation-unemployment trade-offs when formulating monetary and labor market policies. Overall, the findings of this study provide valuable insights into the evolving nature of the Phillips curve and its relevance in today's economy. This research contributes to the limited empirical literature on small open economies within the euro area, providing updated evidence on the dynamics of the Phillips curve in the Slovak context.