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Inflation Persistence and Involuntary Unemployment in Pakistan: A Keynesian Econometric Study

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  • Boughabi, Houssam

Abstract

This paper develops a stochastic Keynesian model linking inflation, unemployment, and GDP. Inflation follows a fractional Brownian motion, capturing persistent shocks, while a temporal convolutional network forecasts conditional paths, allowing machine learning to account for nonlinear interactions and long-memory effects. Unemployment responds conditionally to inflation thresholds, permitting involuntary joblessness, while GDP depends on both variables, reflecting aggregate demand and labor market frictions. The model is applied to Pakistan, simulating macroeconomic dynamics under alternative policy scenarios. We demonstrate that sustained growth is possible even under persistent inflation, reinforcing the empirical relevance of Keynesian theory in contemporary macroeconomic analysis and highlighting the value of machine learning for policy evaluation.

Suggested Citation

  • Boughabi, Houssam, 2025. "Inflation Persistence and Involuntary Unemployment in Pakistan: A Keynesian Econometric Study," MPRA Paper 126294, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:126294
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    References listed on IDEAS

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    1. Olivier Jean Blanchard, 1990. "Suggestions for a New Set of Fiscal Indicators," OECD Economics Department Working Papers 79, OECD Publishing.
    2. George A. Akerlof & William R. Dickens & George L. Perry, 1996. "The Macroeconomics of Low Inflation," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 27(1), pages 1-76.
    3. Laurence Ball, 1994. "What Determines the Sacrifice Ratio?," NBER Chapters, in: Monetary Policy, pages 155-193, National Bureau of Economic Research, Inc.
    4. Aghion, Philippe & Bacchetta, Philippe & Banerjee, Abhijit, 2001. "Currency crises and monetary policy in an economy with credit constraints," European Economic Review, Elsevier, vol. 45(7), pages 1121-1150.
    5. Blinder, Alan S, 1987. "Keynes, Lucas, and Scientific Progress," American Economic Review, American Economic Association, vol. 77(2), pages 130-136, May.
    6. Lucas, Robert Jr., 1972. "Expectations and the neutrality of money," Journal of Economic Theory, Elsevier, vol. 4(2), pages 103-124, April.
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    Keywords

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    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C45 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Neural Networks and Related Topics
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
    • O53 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Asia including Middle East

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