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Coupled Criticality Analysis of Inflation and Unemployment

Authors :
Zahra Koohi Lai
Ali Namaki
Ali Hosseiny
Gholamreza Jafari
Marcel Ausloos
Source :
Entropy, Vol 23, Iss 1, p 42 (2020)
Publication Year :
2020
Publisher :
MDPI AG, 2020.

Abstract

In this paper, we focus on the critical periods in the economy that are characterized by unusual and large fluctuations in macroeconomic indicators, like those measuring inflation and unemployment. We analyze U.S. data for 70 years from 1948 until 2018. To capture their fluctuation essence, we concentrate on the non-Gaussianity of their distributions. We investigate how the non-Gaussianity of these variables affects the coupling structure of them. We distinguish “regular” from “rare” events, in calculating the correlation coefficient, emphasizing that both cases might lead to a different response of the economy. Through the “multifractal random wall” model, one can see that the non-Gaussianity depends on time scales. The non-Gaussianity of unemployment is noticeable only for periods shorter than one year; for longer periods, the fluctuation distribution tends to a Gaussian behavior. In contrast, the non-Gaussianities of inflation fluctuations persist for all time scales. We observe through the “bivariate multifractal random walk” that despite the inflation features, the non-Gaussianity of the coupled structure is finite for scales less than one year, drops for periods larger than one year, and becomes small for scales greater than two years. This means that the footprint of the monetary policies intentionally influencing the inflation and unemployment couple is observed only for time horizons smaller than two years. Finally, to improve some understanding of the effect of rare events, we calculate high moments of the variables’ increments for various q orders and various time scales. The results show that coupling with high moments sharply increases during crises.

Details

Language :
English
ISSN :
10994300
Volume :
23
Issue :
1
Database :
Directory of Open Access Journals
Journal :
Entropy
Publication Type :
Academic Journal
Accession number :
edsdoj.517175988392401096a228d41bfdf814
Document Type :
article
Full Text :
https://doi.org/10.3390/e23010042