Is There a Trade-off Between Inflation and Unemployment Rate in Time of a Pandemic? The Case of Malaysia

Given that policymakers are still looking for the best solution to revitalize the domestic economy and reduce unemployment, the correlation between inflation and unemployment rate is critical for policymakers to draught an effective macroeconomic policy to boost the country's economy. The ARDL and NARDL models were used in this paper to investigate the presence of long-run and asymmetric cointegration between the unemployment rate and inflation in Malaysia. The empirical findings revealed four significant findings: (1) Inflation was significantly associated with the unemployment rate in the short run, but the effect was only temporary. (2) In the long run, there was no trade-off between Malaysian inflation and unemployment. (3) During the COVID-19 pandemic (sample period from 2019 to 2021), the inflation rate was significantly related to Malaysia's unemployment rate, indicating that the COVID-19 pandemic gave the Phillips Curve a new lease on life. (4) Inflation was asymmetrically correlated with Malaysia's unemployment rate during the COVID-19 pandemic. More specifically, a decrease in the inflation rate tended to increase the unemployment rate by a larger margin. In contrast, an increase in the inflation rate would result in a lower deviation in the unemployment rate.