2009/03/29 by Ivan Kitov, Kitov, Ivan, Oleg Kitov +1
Computer Science · Economics, Econometrics and Finance · Mathematics · #FOS: Economics and business #General Finance (q-fin.GN) #Matrix Theory and Algorithms #Modeling, Simulation, and Optimization #Monetary Policy and Economic Impact #Statistical Finance (q-fin.ST)
paper · pdf · doi:10.48550/arxiv.0903.5064
openalex publication_date 2009/03/29 · openalex created_date 2025/10/10 · openalex updated_date 2026/07/28
Using an analog of the boundary element method in engineering and science, we analyze and model unemployment rate in Austria, Italy, the Netherlands, Sweden, Switzerland, and the United States as a function of inflation and the change in labor force. Originally, the model linking unemployment to inflation and labor force was developed and successfully tested for Austria, Canada, France, Germany, Japan, and the United States. Autoregressive properties of neither of these variables are used to predict their evolution. In this sense, the model is a self-consistent and completely deterministic one without any stochastic component (external shocks) except that associated with measurement errors and changes in measurement units. Nevertheless, the model explains between 65% and 95% of the variability in unemployment and inflation. For Italy, the rate of unemployment is predicted at a time horizon of nine years with pseudo out-of-sample root-mean-square forecasting error of 0.55% for the period between 1973 and 2006. One can expect that the u nemployment will be growing since 2008 and will reach 11.4% near 2012. After 2012, unemployment in Italy will start to descend.