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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.

Suggested Citation

  • Kitov, Ivan, 2007. "Exact prediction of inflation and unemployment in Canada," MPRA Paper 5015, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:5015
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    References listed on IDEAS

    as
    1. Edward Nelson, 2005. "Monetary Policy Neglect and the Great Inflation in Canada, Australia, and New Zealand," International Journal of Central Banking, International Journal of Central Banking, vol. 1(1), May.
    2. Marc-André Gosselin & Greg Tkacz, 2001. "Evaluating Factor Models: An Application to Forecasting Inflation in Canada," Staff Working Papers 01-18, Bank of Canada.
    3. 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.
    4. Ali Dib & Mohamed Gammoudi & Kevin Moran, 2008. "Forecasting Canadian time series with the New Keynesian model," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 41(1), pages 138-165, February.
    5. Doug Hostland, "undated". "CHANGES IN THE INFLATION PROCESS IN CANADA: Evidence and Implications," Staff Working Papers 95-5, Bank of Canada.
    6. Calista Cheung & Frédérick Demers, 2007. "Evaluating Forecasts from Factor Models for Canadian GDP Growth and Core Inflation," Staff Working Papers 07-8, Bank of Canada.
    7. André Binette & Sylvain Martel, 2005. "Inflation and Relative Price Dispersion in Canada: An Empirical Assessment," Staff Working Papers 05-28, Bank of Canada.
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    Cited by:

    1. Kitov, Ivan, 2009. "The anti-Phillips curve," MPRA Paper 13641, University Library of Munich, Germany.
    2. 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, vol. 3(2(4)_Summ).
    3. Ivan O. KITOV & Oleg I. KITOV, 2010. "Dynamics Of Unemployment And Inflation In Western Europe: Solution By The 1- D Boundary Elements Method," Journal of Applied Economic Sciences, Spiru Haret University, Faculty of Financial Management and Accounting Craiova, vol. 5(2(12)/Sum), pages 94-113.
    4. Kitov, Ivan, 2007. "Exact prediction of inflation and unemployment in Germany," MPRA Paper 5088, University Library of Munich, Germany.
    5. Kitov, Ivan & Kitov, Oleg, 2009. "A fair price for motor fuel in the United States," MPRA Paper 15039, University Library of Munich, Germany.

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    More about this item

    Keywords

    inflation; unemployment; labor force; prediction; Canada;
    All these keywords.

    JEL classification:

    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications

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