Investigation of the Relationship between the Unemployment Rate and the Inflation Rate of Pakistan

Unemployment is one of the most challenging problems faced by governments, particularly in developing countries. Due to the rapid increase in the population of Pakistan and less number of job opportunities the government needs to properly forecast the unemployment rate to make future policies. This paper aims to model statistical relationships between the unemployment rate and the inflation rate for the determination of any feasible trend of unemployment in the country. About twenty different interrelationships between unemployment and inflation have been investigated by using the curve fitting approach and their goodness of fit was analyzed. The unemployment trend of Pakistan depending only on inflation does not appear homogeneous; as there is an unexpected increase or decrease. The scattered nature of the data shows that there is a negative correlation between the unemployment rate and the inflation rate of Pakistan. However, the Fourier model with three terms, the Gaussian model with two terms, and the sum of the sine model with four terms appear to fit the data moderately.