Kitov, Ivan (2007): Exact prediction of inflation and unemployment in Germany.
Download (186kB) | Preview
Potential links between inflation, π(t), and unemployment, UE(t), in Germany have been examined. There exists a consistent (conventional) Phillips curve despite some changes in monetary policy. This Phillips curve is characterized by a negative relation between inflation and unemployment with the latter leading the former by one year: UE(t-1) = -1.50π(t) + 0.116. Effectively, growing unemployment has resulted in decreasing inflation since 1971, i.e. for the period where GDP deflator observations are available. The relation between inflation and unemployment is statistically reliable with R2=0.86, where unemployment spans the range from 0.01 to 0.12 and inflation, as represented by GDP deflator, varies from -0.01 to 0.07. A linear and lagged relationship between inflation, unemployment and labor force has been also obtained for Germany. Changes in labor force level are leading unemployment and inflation by five and six year, respectively. Therefore this generalized relationship provides a natural prediction of inflation at a six-year horizon, as based upon current estimates of labor force level. The goodness-of-fit for the relationship is 0.87 for the period between 1971 and 2006, i.e. including the periods of high inflation and disinflation.
|Item Type:||MPRA Paper|
|Original Title:||Exact prediction of inflation and unemployment in Germany|
|Keywords:||inflation; unemployment; labor force; prediction; Germany|
|Subjects:||J - Labor and Demographic Economics > J6 - Mobility, Unemployment, Vacancies, and Immigrant Workers > J64 - Unemployment: Models, Duration, Incidence, and Job Search
E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E52 - Monetary Policy
C - Mathematical and Quantitative Methods > C5 - Econometric Modeling > C53 - Forecasting and Prediction Methods ; Simulation Methods
E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E31 - Price Level ; Inflation ; Deflation
|Depositing User:||Ivan Kitov|
|Date Deposited:||01 Oct 2007|
|Last Modified:||03 May 2016 13:24|
Bureau of Labor Statistic, (2007). Foreign Labor Statistic. Table, retrieved at 20.07.2007 from http://data.bls.gov/PDQ/outside.jsp?survey=in
Doepke, J., Dovern, J., Fritsche, U., Slacalek, J., (2005). European inflation expectations dynamics, Deutsche Bundesbank, Discussion Paper, Series 1: Economic Studies, No 37/2005
Gottschalk J., Fritsche, U., (2006). The New Keynesian Model and the Long-run Vertical Phillips Curve: Does it hold for Germany? DEP Discussion Papers, Macroeconomics and Finance Series, 1/2006, Hamburg, 2006
Hayo, B., Hofmann, B., (2005). Comparing Monetary Policy Reaction Functions: ECB versus Bundesbank, Marburg Papers on Economics, No. 02-2005 http://www.wiwi.uni-marburg.de/Lehrstuehle/VWL/WIPOL/Fodiskp.htm
Kitov, I. (2006a). Inflation, unemployment, labor force change in the USA, Working Papers 28, ECINEQ, Society for the Study of Economic Inequality
Kitov, I., (2006b). Exact prediction of inflation in the USA, MPRA Paper 2735, University Library of Munich, Germany
Kitov, I., (2006c). The Japanese economy, MPRA Paper 2737, University Library of Munich, Germany
Kitov, I., (2007a). Inflation, Unemployment, Labor Force Change in European Countries, in. Ed. T. Nagakava, Business Fluctuations and Cycles, Nova Publishers, New-York
Kitov, I., (2007b). Exact Prediction of Inflation and Unemployment in Canada. (in preparation), MPRA Paper 2735, University Library of Munich, Germany
Kitov, I., Kitov, O., Dolinskaya, S., (2007a). Relationship between inflation, unemployment and labor force change rate in France: cointegration test, MPRA Paper 2736, University Library of Munich, Germany.
Kitov, I., Kitov, O., Dolinskaya, S., (2007b). Inflation as a function of labor force change rate: cointegration test for the USA, MPRA Paper 2734, University Library of Munich, Germany.
Mankiw, N.G. (2000). The Inexorable and Mysterious Tradeoff Between Inflation and Unemployment, Harvard Institute of Economic Research Working Papers 1905, Harvard - Institute of Economic Research, http://www.economics.harvard.edu/ faculty/mankiw/papers/royalpap.pdf
Nelson, E., (2006). The Great Inflation and Early Disinflation in Japan and Germany, Federal Reserve Bank of St. Louis, Working Paper 2006-052D, St. Louis, http://research.stlouisfed.org/wp/2006/2006-052.pdf
OECD, (2005). Notes by Country: Germany. http://www.oecd.org/dataoecd/35/3/ 2771299.pdf