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Inflation, unemployment, and labor force. Phillips curves and long-term projections for Japan

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  • Ivan Kitov
  • Oleg Kitov

Abstract

The evolution of the rate of price inflation and unemployment in Japan has been modeled within the Phillips curve framework. As an extension to the Phillips curve, we represent both variables as linear functions of the change rate of labor force. All models were first estimated in 2005 for the period between 1980 and 2003. Here we update these original models with data through 2012. The revisited models accurately describe disinflation during the 1980s and 1990s as well as the whole deflationary period started in the late 1990s. The Phillips curve for Japan confirms the original concept that growing unemployment results in decreasing inflation. A linear and lagged generalized Phillips curve expressed as a link between inflation, unemployment, and labor force has been also re-estimated and validated by new data. Labor force projections allow a long-term inflation and unemployment forecast: the GDP deflator will be negative (between -0.5% and -2% per year) during the next 40 years. The rate of unemployment will increase from 4.3% in 2012 to 5.5% in 2050.

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Paper provided by arXiv.org in its series Papers with number 1309.1757.

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Date of creation: Sep 2013
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Handle: RePEc:arx:papers:1309.1757

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  1. Lucas, Robert Jr., 1972. "Expectations and the neutrality of money," Journal of Economic Theory, Elsevier, vol. 4(2), pages 103-124, April.
  2. Stock, James H. & Watson, Mark W., 1999. "Forecasting inflation," Journal of Monetary Economics, Elsevier, vol. 44(2), pages 293-335, October.
  3. Emmanuel De Veirman, 2007. "Which nonlinearity in the Phillips curve? The absence of accelerating deflation in Japan," Reserve Bank of New Zealand Discussion Paper Series DP2007/14, Reserve Bank of New Zealand.
  4. Stock J.H. & Watson M.W., 2002. "Forecasting Using Principal Components From a Large Number of Predictors," Journal of the American Statistical Association, American Statistical Association, vol. 97, pages 1167-1179, December.
  5. Kamada, Koichiro, 2005. "Real-time estimation of the output gap in Japan and its usefulness for inflation forecasting and policymaking," The North American Journal of Economics and Finance, Elsevier, vol. 16(3), pages 309-332, December.
  6. Pascalau, Razvan, 2007. "Productivity Shocks, Unemployment Persistence, and the Adjustment of Real Wages in OECD Countries," MPRA Paper 7222, University Library of Munich, Germany.
  7. Masaaki Shirakawa, 2012. "Demographic Changes and Macroeconomic Performance: Japanese Experiences," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 30, pages 19-38, November.
  8. Kitov, Ivan, 2009. "The anti-Phillips curve," MPRA Paper 13641, University Library of Munich, Germany.
  9. James H. Stock & Mark W. Watson, 2006. "Why Has U.S. Inflation Become Harder to Forecast?," NBER Working Papers 12324, National Bureau of Economic Research, Inc.
  10. Shigenori Shiratsuka, 1999. "Measurement errors in Japanese Consumer Price Index," Working Paper Series WP-99-2, Federal Reserve Bank of Chicago.
  11. Toshitaka Sekine, 2001. "Modeling and Forecasting Inflation in Japan," IMF Working Papers 01/82, International Monetary Fund.
  12. James H. Stock & Mark W. Watson, 2007. "Erratum to "Why Has U.S. Inflation Become Harder to Forecast?"," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 39(7), pages 1849-1849, October.
  13. Daniel Leigh, 2004. "Monetary Policy and the Dangers of Deflation:Lessons from Japan," Economics Working Paper Archive 511, The Johns Hopkins University,Department of Economics.
  14. Gali, Jordi & Gertler, Mark, 1999. "Inflation dynamics: A structural econometric analysis," Journal of Monetary Economics, Elsevier, vol. 44(2), pages 195-222, October.
  15. Ivan KITOV & Oleg KITOV, 2012. "Modeling Unemployment And Employment In Advanced Economies: Okun’S Law With A Structural Break," Theoretical and Practical Research in Economic Fields, ASERS Publishing, vol. 0(1), pages 26-41, June.
  16. 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.
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