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Inflation, Unemployment, Labor Force Change in European Counties

  • Ivan Kitov

    ()

    (IDG RAS)

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 greater than 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 Socionet in its series Mechonomics with number mechonomics7.

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Date of creation: 11 Apr 2007
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Handle: RePEc:nos:tttehw:mechonomics7
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