Akademik Veri Yönetim Sistemi
JOURNAL OF SUSTAINABILITY SCIENCE AND MANAGEMENT, cilt.18, sa.11, ss.128-146, 2023 (Scopus)
The theory of the Phillips curve posits a trade-off nexus between inflation
and growth where high inflation stimulates higher economic growth by reducing the
unemployment rate. The nexus has been debated without coming to a consensus. Hence,
this study extends the examination of the two-way nexus by using Markov-switching
dynamic regression (MS-DR) for the case of Malaysia for the period from 1960 to 2019.
The study also seeks to identify other determinants that contribute to economic growth
in Malaysia. The results detected the existence of a trade-off relationship in the two-way
gross domestic product (GDP)-inflation nexus when GDP is at a low regime and inflation
is at a high regime respectively. This implies that the effort of policymakers to achieve low
inflation and high GDP cannot be achieved together, as the achievement of one target would
come at the expense of the other target. Hence, high inflation rates and low GDP levels are
not desired economic regimes. Moreover, the output gap does not influence the inflation
rate, but inflation might affect the output gap and GDP. Government expenditure and gross
capital formation are the main factors that contribute to higher GDP. The policymaker
should monitor price stability and stimulates economic growth through monetary and fiscal
policy actions.