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

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  • Kitov, Ivan
  • KItov, Oleg

Abstract

The evolution of the rate of price inflation, (t), and unemployment, u(t), 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 fo unemployment will increase from ~4.3% in 2012 to ~5.5% in 2050.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 49388.

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Date of creation: 30 Aug 2013
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Handle: RePEc:pra:mprapa:49388

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Keywords: inflation; unemployment; labor force; Phillips curve; forecasting; Japan;

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  1. 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.
  2. 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.
  3. James H. Stock & Mark W. Watson, 1999. "Forecasting Inflation," NBER Working Papers 7023, National Bureau of Economic Research, Inc.
  4. Kitov, Ivan, 2009. "The anti-Phillips curve," MPRA Paper 13641, University Library of Munich, Germany.
  5. Gali, Jordi & Gertler, Mark, 1999. "Inflation dynamics: A structural econometric analysis," Journal of Monetary Economics, Elsevier, vol. 44(2), pages 195-222, October.
  6. 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.
  7. Toshitaka Sekine, 2001. "Modeling and Forecasting Inflation in Japan," IMF Working Papers 01/82, International Monetary Fund.
  8. 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.
  9. 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.
  10. Pascalau, Razvan, 2007. "Productivity Shocks, Unemployment Persistence, and the Adjustment of Real Wages in OECD Countries," MPRA Paper 7222, University Library of Munich, Germany.
  11. 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.
  12. Shigenori Shiratsuka, 1999. "Measurement errors in Japanese Consumer Price Index," Working Paper Series WP-99-2, Federal Reserve Bank of Chicago.
  13. Lucas, Robert Jr., 1972. "Expectations and the neutrality of money," Journal of Economic Theory, Elsevier, vol. 4(2), pages 103-124, April.
  14. Kamada, Koichiro, 2004. "Real-Time Estimation of the Output Gap in Japan and its Usefulness for Inflation Forecasting and Policymaking," Discussion Paper Series 1: Economic Studies 2004,14, Deutsche Bundesbank, Research Centre.
  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. 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.
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