Statistical Analysis of the Relation between Inflation and Unemployment in Democratic States using Spearman’s ƍ Correlation Coefficient with Application in Albania

Abstract

The main purpose of the present study is to investigate relation between inflation rate and unemployment rate in contemporary democratic states, using Spearman’s ƍ correlation coefficient. We apply this method in Albania during the period January 2005-December 2014. Some results of the study include:  The Central Limit Theorem is not applicable for the quarterly inflation rate as well as for quarterly unemployment rate in Albania during the period January 2005-December 2014 at the confidence level 99.99%. The official data for inflation and unemployment contradict the CLT at very high confidence level 99.99%.  The inflation process in Albania during the period January 2005-December 2014 is an unfair game at the confidence level 99.2%.  The unemployment process in Albania during the period January 2005-December 2014 is an unfair game at the confidence level 99.99%.  The inflation and unemployment in Albania during the period January 2005-December 2014 are statistically dependent at the 96% confidence level.  Spearman’s correlation coefficient ƍ= 0.387 indicates a weak positive correlation between inflation and unemployment in Albania during the specified period.  The official data for inflation and unemployment in Albania during the period January 2005- December 2014 are consistent with Friedman’s hypothesis.