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Dynamics Of Unemployment And Inflation In Western Europe: Solution By The 1- D Boundary Elements Method

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  • Ivan O. KITOV
  • Oleg I. KITOV

Abstract

Using an analog of the boundary elements method in engineering and science, we analyze and model unemployment rate in Austria, Italy, the Netherlands, Sweden, Switzerland, and the United States as a function of inflation and the change in labor force. Originally, the model linking unemployment to inflation and labor force was developed and successfully tested for Austria, Canada, France, Germany, Japan, and the United States. Autoregressive properties of neither of these variables are used to predict their evolution. In this sense, the model is a self-consistent and completely deterministic one without any stochastic component (external shocks) except that associated with measurement errors and changes in measurement units. Nevertheless, the model explains between ~65% and ~95% of the variability in unemployment and inflation. For Italy, the rate of unemployment is predicted at a time horizon of nine (!) years with pseudo out-of-sample root-mean-square forecasting error of 0.55% for the period between 1973 and 2006. One can expect that the unemployment will be growing since 2008 and will reach ~11.4% [±0.6 %] near 2012. After 2012, unemployment in Italy will start to descend.

Suggested Citation

  • Ivan O. KITOV & Oleg I. KITOV, 2010. "Dynamics Of Unemployment And Inflation In Western Europe: Solution By The 1- D Boundary Elements Method," Journal of Applied Economic Sciences, Spiru Haret University, Faculty of Financial Management and Accounting Craiova, vol. 5(2(12)/Sum), pages 94-113.
    • Handle: RePEc:ush:jaessh:v:5:y:2010:i:2(12)_spring2010:p:103
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    References listed on IDEAS

    as
    1. Ivan O. Kitov, 2009. "Mechanical Model of Personal Income Distribution," Papers 0903.0203, arXiv.org.
    2. Ivan, Kitov, 2006. "Exact prediction of inflation in the USA," MPRA Paper 2735, University Library of Munich, Germany.
    3. Kitov, Ivan, 2007. "Inflation, unemployment, labor force change in European countries," MPRA Paper 14557, University Library of Munich, Germany.
    4. Kitov, Ivan & Kitov, Oleg & Dolinskaya, Svetlana, 2007. "Inflation as a function of labor force change rate: cointegration test for the USA," MPRA Paper 2734, University Library of Munich, Germany.
    5. Kitov, Ivan, 2009. "The anti-Phillips curve," MPRA Paper 13641, University Library of Munich, Germany.
    6. Kitov, Ivan & Kitov, Oleg & Dolinskaya, Svetlana, 2007. "Relationship between inflation, unemployment and labor force change rate in France: cointegration test," MPRA Paper 2736, University Library of Munich, Germany.
    7. Kitov, Ivan, 2007. "Exact prediction of inflation and unemployment in Japan," MPRA Paper 5464, University Library of Munich, Germany.
    8. Kitov, Ivan, 2007. "Exact prediction of inflation and unemployment in Germany," MPRA Paper 5088, University Library of Munich, Germany.
    9. Kitov, Ivan, 2007. "Exact prediction of inflation and unemployment in Canada," MPRA Paper 5015, University Library of Munich, Germany.
    10. James H. Stock & Mark W. Watson, 2005. "Has inflation become harder to forecast?," Proceedings, Board of Governors of the Federal Reserve System (U.S.).
    11. Andrew Atkeson & Lee E. Ohanian, 2001. "Are Phillips curves useful for forecasting inflation?," Quarterly Review, Federal Reserve Bank of Minneapolis, vol. 25(Win), pages 2-11.
    Full references (including those not matched with items on IDEAS)

    Citations

    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. The French economy needs ”helicopter money” to boost labor force growth and avoid deflation
      by Ivan Kitov in Economics as Classical Mechanics on 2017-01-14 02:46:00

    Citations

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    Cited by:

    1. Oleg KITOV & Ivan KITOV, 2012. "Inflation And Unemployment In Switzerland: From 1970 To 2050," Journal of Applied Economic Sciences, Spiru Haret University, Faculty of Financial Management and Accounting Craiova, vol. 7(2(20)/ Su), pages 141-156.
    2. Ivan Kitov & Oleg Kitov, 2013. "Does Banque de France control inflation and unemployment?," Papers 1311.1097, arXiv.org.
    3. Oleg KITOV & Ivan KITOV, 2012. "A Win-Win Monetary Policy In Canada," Journal of Applied Economic Sciences, Spiru Haret University, Faculty of Financial Management and Accounting Craiova, vol. 6(6(18)/ Su), pages 160-176.
    4. Kitov, Ivan & Kitov, Oleg, 2012. "Sustainable trends and periodicity in consumer price indices indicate that the era of low energy prices is approaching," MPRA Paper 43392, University Library of Munich, Germany.
    5. Kitov, Ivan & KItov, Oleg, 2013. "Inflation, unemployment, and labor force. Phillips curves and long-term projections for Japan," MPRA Paper 49388, University Library of Munich, Germany.
    6. Ivan Kitov & Oleg Kitov, 2013. "Inflation, unemployment, and labour force. Phillips curves and long-term projections for Austria," Papers 1310.1786, arXiv.org.
    7. Ivan Kitov & Oleg Kitov, 2011. "The Australian Phillips curve and more," Papers 1102.1851, arXiv.org.

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    More about this item

    Keywords

    unemployment; inflation; labor force; boundary integral method; prediction; Western Europe;
    All these keywords.

    JEL classification:

    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
    • J11 - Labor and Demographic Economics - - Demographic Economics - - - Demographic Trends, Macroeconomic Effects, and Forecasts
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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