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

Listed author(s):
  • Ivan O. KITOV
  • Oleg I. KITOV

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.

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Article provided by Spiru Haret University, Faculty of Financial Management and Accounting Craiova in its journal Journal of Applied Economic Sciences.

Volume (Year): 5 (2010)
Issue (Month): 2(12)/Summer2010 ()
Pages: 94-113

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Handle: RePEc:ush:jaessh:v:5:y:2010:i:2(12)_spring2010:p:103
Contact details of provider: Web page: http://www2.spiruharet.ro/facultati/facultate.php?id=14

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  1. Ivan, Kitov, 2006. "Exact prediction of inflation in the USA," MPRA Paper 2735, University Library of Munich, Germany.
  2. 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.
  3. Kitov, Ivan, 2007. "Exact prediction of inflation and unemployment in Canada," MPRA Paper 5015, University Library of Munich, Germany.
  4. 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.
  5. Ivan O. Kitov, 2009. "Mechanical model of personal income distribution," Working Papers 110, ECINEQ, Society for the Study of Economic Inequality.
  6. Kitov, Ivan, 2007. "Exact prediction of inflation and unemployment in Japan," MPRA Paper 5464, University Library of Munich, Germany.
  7. Kitov, Ivan, 2007. "Exact prediction of inflation and unemployment in Germany," MPRA Paper 5088, University Library of Munich, Germany.
  8. Kitov, Ivan, 2007. "Inflation, unemployment, labor force change in European countries," MPRA Paper 14557, University Library of Munich, Germany.
  9. James H. Stock & Mark W. Watson, 2005. "Has inflation become harder to forecast?," Proceedings, Board of Governors of the Federal Reserve System (U.S.).
  10. Kitov, Ivan, 2009. "The anti-Phillips curve," MPRA Paper 13641, University Library of Munich, Germany.
  11. Andrew Atkeson & Lee E. Ohanian, 2001. "Are Phillips curves useful for forecasting inflation?," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Win, pages 2-11.
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