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Unemployment and inflation in Western Europe: solution by the boundary element method

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  • Ivan Kitov
  • Oleg Kitov

Abstract

Using an analog of the boundary element 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 u nemployment will be growing since 2008 and will reach 11.4% near 2012. After 2012, unemployment in Italy will start to descend.

Suggested Citation

  • Ivan Kitov & Oleg Kitov, 2009. "Unemployment and inflation in Western Europe: solution by the boundary element method," Papers 0903.5064, arXiv.org.
  • Handle: RePEc:arx:papers:0903.5064
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    References listed on IDEAS

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    1. Ivan O. Kitov & Oleg I. kitov, 2008. "The driving force of labor productivity," Papers 0811.2124, arXiv.org.
    2. 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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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. In 2008, we accurately predicted the evolution of unemployment rate in Italy!
      by Ivan Kitov in Economics as Classical Mechanics on 2017-01-10 18:46:00

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    Cited by:

    1. Kitov, Ivan & Kitov, Oleg, 2009. "A fair price for motor fuel in the United States," MPRA Paper 15039, University Library of Munich, Germany.
    2. Ivan O. Kitov, 2009. "Does economics need a scientific revolution?," Papers 0904.0729, arXiv.org.

    More about this item

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
    • J11 - Labor and Demographic Economics - - Demographic Economics - - - Demographic Trends, Macroeconomic Effects, and Forecasts

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