In 1991, the Colombian authorities implemented an inflation target for the first time, at a time when the central bank (Banco de la Republican, BR) and the government were unclear about their tasks in macroeconomic management and no authority set monetary policies. Therefore, the nature of inflation targeting and its operational significance were perplexing and received little credibility (Gómez, Uribe, and Vargas, 2002). The unemployment rate in Colombia is one of the highest compared to the world and Latin American average. Even though unemployment levels in Colombia decreased during the period examined (1991 to 2015), there were periods of high unemployment, such as in 1999 and 2000, with 20.1% and 20.5% unemployed. . There has been debate over whether there is a relationship between unemployment and inflation and whether there is a trade-off between the two. Economist AW Phillips created the famous “Phillips curve” which describes the inverse relationship between unemployment and inflation. However, economists like Friedman and Phelps believed that in the long run, the relationship between unemployment and inflation was nonexistent (Razin and Yuen, 2002). This article attempts to estimate the relationship between inflation and unemployment in Colombia between 1991 and 2015 and in the short term; the year 2015. Finally, this article examines targeted inflation in Colombia since its introduction in 1991 and its success in reducing inflation until 2015. Say no to plagiarism. Get a tailor-made essay on “Why Violent Video Games Should Not Be Banned”? Get an Original Essay The following section will review the relevant literature on the relationship between inflation and unemployment. In order to understand the relationship between these two variables, inflation, targeted inflation, Philips curve and unemployment will be discussed. Simply put, inflation is the rise in price levels in the economy. Businesses respond to price levels in the economy. So, if there is a substantial change in aggregate demand, businesses will respond to these changes. If aggregate demand increases, firms will likely raise prices, and if demand is high, they will raise prices in order to increase profits (Sloman, ). Inflation is measured by the increase in price levels and therefore by price indices. There are three main inflation indices: the Consumer Price Index (CPI) and GDP deflator, and the Producer Price Index (PPI) (Hubbard and O'Brien, 2007). The CPI: is the main measure of inflation levels. It takes into account the consumption basket and services used by households, such as water and food, and measures the evolution of its price levels. The prices of this index are periodically weighted in quantities (Mankiw, 2007). In 2017, in the United Kingdom, the Office for National Statistics introduced a new measure called consumer price inflation, including the cost of owner-occupied housing (CPIH), which acts as the CPI but is adjusted for based on average residential rents (CHU, 2017).PPI: Similar to the CPI, the PPI takes the consumer basket and services to measure changes in its price levels, but instead of households, the PPI takes the prices of business production goods and services such as raw cotton and oil (Hubbard and O'Brien, 2007). GDP deflator: It measures all final goods and services produced in a country during a given period, usually one year, using the ratio of nominal GDP to real GDP (Hubbard and O'Brien, 2007). Beginning in 1991, Colombia began targeting inflation. and between 1992 and 1999, monetary policy was introduced. However, the first objectivesinflation rates were more in the form of a forecast than a monetary policy objective (Gómez, Uribe and Vargas, 2002). By law, the central bank (BR) must announce an inflation target lower than the observed inflation rate of the previous year. The legal framework used for price stability was introduced in the 1991 constitution and the central bank must comply with the regulations to ensure price stability in Colombia (Gómez, Uribe and Vargas, 2002). The unemployment or employment rate is measured by the active population. The percentage of the working population that is unemployed is defined as the unemployment rate. There are three main types of unemployment. Frictional, structural and cyclical unemployment (Hubbard and O'Brien, 2007). Frictional unemployment: it refers to the time it takes an unemployed person to find a job. This unemployment is often short-term because it is the necessary process for a worker to find a job. Structural unemployment: It refers to the mismatch between the skills and abilities needed for the job and the person seeking employment. This unemployment is often long-term because new skills must be acquired and people retrained. Cyclical unemployment: This type of unemployment occurs due to economic recessions. When an economy enters a recession, companies must cut production and lay off workers because they cannot afford to do so. Several researches have been conducted on the relationship between inflation and unemployment. In 1958, economist AW Phillips pioneered research into the relationship between these two macroeconomic variables. The Philips curve suggests that there is an inverse relationship between inflation and unemployment. Phillips demonstrated the supposed relationship with his research in the United Kingdom and observed that as aggregate demand increased, inflation levels rose but unemployment fell and wages rose rapidly in periods of low unemployment levels while wages rose slowly when there were periods of high levels of unemployment. unemployment (Singh and Verma, 2016). The curve was a reference for policy makers. They can either reduce unemployment levels but at the cost of higher inflation, or lower inflation levels at the cost of higher unemployment levels. However, other research from the 1960s suggests that the trade-off between unemployment and inflation is limited (Sloman and Garratt, 2010). Therefore, the Phillips curve operates under three assumptions: In the short run, there is a trade-off between inflation and unemployment. In the short term, stagflation can break the trade-off between inflation and unemployment. There is no trade-off between inflation and employment in the long term. Since then, many economists have studied this relationship and its accuracy. Research by Mankiw (2001) suggests that monetary policy is very important because it influences unemployment and, in turn, it influences inflation, hence a trade-off. Mankiw believes that the Phillips curve is a good point of view, but it fails to describe the dynamics of the relationship between unemployment and inflation because the Phillips curve does not take into account any theory of price adjustment. Alisa (2015) concluded that the Phillips curve provides important information to policy makers. However, this means that policymakers must choose between higher unemployment or higher inflation, because the Phillips curve suggests that in the short term, price stability and full employment are unattainable. Furthermore, his research on the Russian Federation agrees with Friedman that the Phillips curve is only a short-term effect. Furthermore, the work of Slezarov (2012) shows that there is a strong relationship..