Forecasting the Level of Unemployment, Inflation and Wages: The Case of Sweden
Purpose: In the macroeconomic theory and analyses there are a number of studies focused on three crucial phenomena, namely unemployment, inflation, and wages. As a result, the term called ‘Phillips curve’ was introduced in order to illustrate a negative correlation between inflation and the unemployment rate. This paper is to establish the relationship between unemployment, inflation, and wages in Sweden, and to forecast their value using. Design/Methodology/Approach: The Vector Autoregression (VAR) model has been used for the analysis. The analysis applies the values of the unemployment rate, the level of the minimum wage and the value of inflation in the period of 2002 - 2017 on a quarterly basis. Findings: Results from the analysis show that (1) the unemployment rate and the level of wages do not explain well enough inflation developments in Sweden and (2) as in many previous empirical studies on this topic, there are no significant changes in employment resulting from the increase in the minimum wage. Practical Implications: This study is of great importance especially for the policy makers who can apply the presented analysis tools to predict further tendencies in shaping value of the main economic indicators and make appropriate decisions to avoid possible recession and its negative consequences. Therefore, the outcomes of this paper can increase efficiency of the economic policy in numerous countries. Originality/Value: This research checks the suitability of the widely known tool to evaluate dependencies and predict further situation of the main economic indicators in Sweden. Moreover, the analysis shows that the real relationships between unemployment rate, minimum wages and inflation are not always the same as these, which appear in the literature.