| This research has purpose to determine the effect between inflation toward unemployment rate. Dependent variable in this research is the nemployment rate with period beween 2000 and 2010. And its independen variable is inflation rate, period between 2000 to 2010. Due to the restricted of data of unemployment rate, therefore it has been proxied to Output gap which processed by Hodrick Prescott Method. And the data of unemployment rate prepared from data on Output gap with Hodrick Prescott Method. Whereas the inflation rate data using the CPI inflation data (base year 2005). The method that has been used in this research is Error Correction Model. The Tests performed in this research include the data stationarity tests, cointegration tests, and test methods of Error Correction Model. The model in this study is used the equation of Autoregressive Distributed Lag (ARDL 1.1). The selection of this model is due to the model shows a shortterm and long-term relation and with it, we could see the speed of adjustment of each variable has been used. From this research, we have conclusion that the inflation variable has an influence on the movement of the unemployment rate. It could be seen through the output gap is positive. The inflation that rise will lead the output gap increases and further, the unemployment decrease. |