First Differece-Autocorrelation

[smurac1986]

Hi,

I am running a simple Phillips curve model with 3 explanatory variables. As one of these variables is the lag of the dependent variable (inflation, and inflation-1), I have encountered the problem of autocorrelation. I was just wondering if this problem can be solved by first differencing all variables (including the dependent) in the model or does econometric theory not justify this.

I am quite new to this process so any information would be greatly appreciated.
Thanks in advance,
Shane