engleski

Employment, production, prices and foreign currency exchange rate : the case of Croatia

With the process of "stagnation" the Phillips curve seemed to be definitely dead, but nowadays, a majority of economists seems to agree that an inverse relationship between inflation and unemployment holds as long as changes in output and prices are demand-driven. After the presentation of the Phillips curve as an empirical regularity it has tried to exploit it for policy purposes in the case of Croatia. It is especially, important to investigate if the macro-economic processes of unemployment and price tendencies after 1993 (upon the successful implementation of the anti-inflation program) develop in an analogue way. Okun's Law postulates - an inverse relationship between tendencies of the unemployment rate and the real gross domestic product (GDP). This article investigates the effect of Okun's Law on the Republic of Croatia, and check its structural stability. By using data on employment and labour force we infer whether structural stability is caused by the force of demand on the one side or, by the force of supply on the other side. In this survey is set the empirical connection between the inflation and the gap between the actual and natural rate of unemployment, and after wards will be checked the application ability of the Okun's Law in the Republic of Croatia. Finally, the usage of an econometric model is an attempt to define the role of instability of the HRK foreign exchange rate in increasing the gap between the actual and the real rate of unemployment, and the gap between the potential and actual production of the Republic of Croatia.

Phillips curve; Okun's Law; GDP; unemployment; gap; Croatia

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