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Exact prediction of inflation and unemployment in Canada

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  • Kitov, Ivan

Abstract

Potential links between inflation and unemployment in Canada have been examined. No consistent Phillips curve has been found likely due to strong changes in monetary policy of the Bank of Canada. However, there were two distinct periods where linear links between inflation and unemployment could exist - before 1983 and after 1983. A linear and lagged relationship between inflation, unemployment and labor force has been obtained for Canada. Similar relationships were reported previously for the USA, Japan, France and Austria. Changes in labor force level are simultaneously reflected in unemployment and lead inflation by two years. Therefore this generalized relationship provides a two-year ahead natural prediction of inflation based on current estimates of labor force level and unemployment rate. The goodness-of-fit for the relationship is of 0.7 for the period since 1965, i.e. including the periods of high inflation and disinflation.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 5015.

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Date of creation: 25 Sep 2007
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Handle: RePEc:pra:mprapa:5015

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Keywords: inflation; unemployment; labor force; prediction; Canada;

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References

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  1. Doug Hostland, . "CHANGES IN THE INFLATION PROCESS IN CANADA: Evidence and Implications," Working Papers, Bank of Canada 95-5, Bank of Canada.
  2. Ali Dib & Mohamed Gammoudi & Kevin Moran, 2005. "Forecasting Canadian Time Series with the New-Keynesian Model," Cahiers de recherche, CIRPEE 0527, CIRPEE.
  3. Edward Nelson, 2004. "Monetary policy neglect and the Great Inflation in Canada, Australia, and New Zealand," Working Papers, Federal Reserve Bank of St. Louis 2004-008, Federal Reserve Bank of St. Louis.
  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.
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Cited by:
  1. Kitov, Ivan, 2007. "Exact prediction of inflation and unemployment in Germany," MPRA Paper 5088, University Library of Munich, Germany.
  2. Kitov, Ivan, 2009. "The anti-Phillips curve," MPRA Paper 13641, University Library of Munich, Germany.
  3. Kitov, Ivan & Kitov, Oleg, 2009. "A fair price for motor fuel in the United States," MPRA Paper 15039, University Library of Munich, Germany.
  4. Ivan O. Kitov & Oleg I. Kitov, 2008. "Long-Term Linear Trends In Consumer Price Indices," Journal of Applied Economic Sciences, Spiru Haret University, Faculty of Financial Management and Accounting Craiova, Spiru Haret University, Faculty of Financial Management and Accounting Craiova, vol. 3(2(4)_Summ).

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