Exact Prediction of Inflation and Unemployment in Japan

22 Pages Posted: 29 Oct 2007

See all articles by Ivan Kitov

Ivan Kitov

Russian Academy of Sciences (RAS) - Institute for the Geospheres Dynamics

Date Written: 2007

Abstract

Past and future evolution of inflation, (t), and unemployment, UE(t), in Japan is modeled. Both variables are represented as linear functions of the change rate of labor force level. These models provide an accurate description for disinflation in the 1990s and deflationary period in the 2000s.

In Japan, there exists a statistically reliable (R2=0.68) Phillips curve. This Phillips curve is characterized by a negative relation between inflation and unemployment and their synchronous evolution: UE(t) = -0.94(t) + 0.045. Effectively, growing unemployment has resulted in decreasing inflation since 1982.

A linear and lagged generalized relationship between inflation, unemployment and labor force has been also obtained for Japan: (t) = 2.8*dLF(t)/LF(t) + 0.9*UE(t) - 0.0392.

Labor force projections allow a reliable prediction of inflation and unemployment in Japan: CPI inflation will be negative (between -0.5% and -1% per year) during the next 40 years. Unemployment will increase from 4.0% in 2010 to 5.3% in 2050.

Keywords: unemployment, labor force, modeling, Japan

JEL Classification: O11, E32, J2

Suggested Citation

Kitov, Ivan O., Exact Prediction of Inflation and Unemployment in Japan ( 2007). Available at SSRN: https://ssrn.com/abstract=1024941 or http://dx.doi.org/10.2139/ssrn.1024941

Ivan O. Kitov (Contact Author)

Russian Academy of Sciences (RAS) - Institute for the Geospheres Dynamics ( email )

Leninsky prospect 38/1
Moscow, Moscow 119334
Russia

HOME PAGE: http://idg3.chph.ras.ru

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