Inflation and unemployment in Switzerland: from 1970 to 2050

TL;DR

This paper develops an empirical model linking inflation and unemployment in Switzerland to changes in the labor force, providing accurate three-year inflation forecasts and extending predictions to 2050 based on labor force projections.

Contribution

It introduces a novel empirical model using the cumulative curves method to predict inflation from labor force data, validated with Swiss data and extended to future projections.

Findings

Model accurately predicts inflation over a three-year horizon.

Variables are cointegrated, supporting the model's validity.

Extended forecasts up to 2050 based on official labor force projections.

Abstract

An empirical model is presented linking inflation and unemployment rate to the change in the level of labour force in Switzerland. The involved variables are found to be cointegrated and we estimate lagged linear deterministic relationships using the method of cumulative curves, a simplified version of the 1D Boundary Elements Method. The model yields very accurate predictions of the inflation rate on a three year horizon. The results are coherent with the models estimated previously for the US, Japan, France and other developed countries and provide additional validation of our quantitative framework based solely on labour force. Finally, given the importance of inflation forecasts for the Swiss monetary policy, we present a prediction extended into 2050 based on official projections of the labour force level.