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Inflation, unemployment, labor force change in European countries

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  • Kitov, Ivan

Abstract

Linear relationships between inflation, unemployment, and labor force are obtained for two European countries - Austria and France. The best fit models of inflation as a linear and lagged function of labor force change rate and unemployment explain more than 90% of observed variation (R2>0.9). Labor force projections for Austria provide a forecast of decreasing inflation for the next ten years. In France, inflation lags by four years behind labor force change and unemployment allowing for an exact prediction at a four-year horizon. Standard error of such a prediction is lower than 1%. The results confirm those obtained for the USA and Japan and provide strong evidences in favor of the concept of labor force growth as the only driving force behind unemployment and inflation.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 14557.

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Date of creation: 01 Jan 2007
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Handle: RePEc:pra:mprapa:14557

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Keywords: inflation; unemployment; labor force; modeling;

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References

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  1. Ivan O. Kitov, 2006. "GDP growth rate and population," Working Papers 42, ECINEQ, Society for the Study of Economic Inequality.
  2. Laurence Ball & N. Gregory Mankiw & Ricardo Reis, 2003. "Monetary Policy for Inattentive Economies," NBER Working Papers 9491, National Bureau of Economic Research, Inc.
  3. Robert H. Rasche & Marcela M. Williams, 2007. "The effectiveness of monetary policy," Review, Federal Reserve Bank of St. Louis, issue Sep, pages 447-490.
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  6. William T. Gavin & Finn E. Kydland, 1999. "Endogenous Money Supply and the Business Cycle," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 2(2), pages 347-369, April.
  7. Hubrich, Kirstin, 2003. "Forecasting euro area inflation: Does aggregating forecasts by HICP component improve forecast accuracy?," Working Paper Series 0247, European Central Bank.
  8. Rudd, Jeremy & Whelan, Karl, 2005. "New tests of the new-Keynesian Phillips curve," Journal of Monetary Economics, Elsevier, vol. 52(6), pages 1167-1181, September.
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  12. Kydland, Finn E., 2004. "Quantitative Aggregate Theory," Nobel Prize in Economics documents 2004-4, Nobel Prize Committee.
  13. Ang, Andrew & Bekaert, Geert & Wei, Min, 2007. "Do macro variables, asset markets, or surveys forecast inflation better?," Journal of Monetary Economics, Elsevier, vol. 54(4), pages 1163-1212, May.
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  20. Laurence Ball & N. Gregory Mankiw, 2002. "The NAIRU in Theory and Practice," Harvard Institute of Economic Research Working Papers 1963, Harvard - Institute of Economic Research.
  21. Kitov, Ivan, 2006. "Real GDP per capita in developed countries," MPRA Paper 2738, University Library of Munich, Germany.
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  23. Sbordone, Argia M., 2005. "Do expected future marginal costs drive inflation dynamics?," Journal of Monetary Economics, Elsevier, vol. 52(6), pages 1183-1197, September.
  24. Ivan Kitov, 2007. "Exact Prediction of Inflation in the USA," Mechonomics mechonomics4, Socionet.
  25. Douglas Staiger & James H. Stock & Mark W. Watson, 1996. "How Precise are Estimates of the Natural Rate of Unemployment?," NBER Working Papers 5477, National Bureau of Economic Research, Inc.
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  27. Jane Ihrig & Jaime Marquez, 2003. "An empirical analysis of inflation in OECD countries," International Finance Discussion Papers 765, Board of Governors of the Federal Reserve System (U.S.).
  28. Ivan O. Kitov, 2006. "Inflation, unemployment, labor force change in the USA," Working Papers 28, ECINEQ, Society for the Study of Economic Inequality.
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Citations

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Cited by:
  1. Kitov, Ivan, 2009. "The anti-Phillips curve," MPRA Paper 13641, University Library of Munich, Germany.
  2. Ivan O. Kitov & Oleg I. Kitov & Svetlana A. Dolinskaya, 2008. "Relationship between inflation, unemployment and labor force change rate in France: cointegration test," Papers 0811.0896, arXiv.org.
  3. Ivan Kitov & Oleg Kitov & Svetlana Dolinskaya, 2007. "Linear Lagged Relationship Between Inflation, Unemployment and Labor Force Change Rate in France: Cointegration Test," Mechonomics mechonomics2, Socionet.
  4. Kitov, Oleg & Kitov, Ivan, 2011. "Inflation and unemployment in Switzerland: from 1970 to 2050," MPRA Paper 28887, University Library of Munich, Germany.
  5. Ivan O. Kitov & Oleg I. Kitov & Svetlana A. Dolinskaya, 2008. "Inflation as a function of labor force change rate: cointegration test for the USA," Papers 0811.0892, arXiv.org.
  6. Kitov, Ivan, 2007. "Exact prediction of inflation and unemployment in Germany," MPRA Paper 5088, University Library of Munich, Germany.
  7. Kitov, Ivan, 2006. "The Japanese economy," MPRA Paper 2737, University Library of Munich, Germany.
  8. Kitov, Ivan & Kitov, Oleg, 2009. "A fair price for motor fuel in the United States," MPRA Paper 15039, University Library of Munich, Germany.

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