Through history, the relationship between inflation and unemployment, has been represented with Philips curve model, which is highly prominent in macroeconomic theory and practice till this day. Proof of the relevance of this theoretical concept is the fact that there is no textbook in the field of macroeconomics, nor monetary economics, that does not include the Phillips curve in its content. Given that the appearance and disappearance of the inverse relationship between the inflation rate and the unemployment rate is impossible to predict, constant empirical research is conducted to test the validity of the Phillips curve in modern economies. The purpose of this paper is to formulate a suitable model of the Phillips curve for Montenegro and evaluate it based on empirical data taken from the website of the Central Bank of Montenegro.

Keywords : inflation, unemployment, Philips curve, dummy variables.