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# Ivan Kitov's  Instablog

Ivan Kitov
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I am a Doctor of Physics and Mathematics, Lead Researcher at the Institute for the Geospheres' Dynamics, Russian Academy of Sciences. Founding member of the Society for the Study of Economic Inequality Published three monographs in economics and finances: Deterministic mechanics of pricing... More
My company:
Stock Market Science
My blog:
Economics as Classical Mechanics
My book:
Deterministic mechanics of pricing
• ##### The Rate Of Unemployment In The UK Will Likely Rise To 9%  0 comments
Feb 27, 2012 9:48 AM
We estimated a version of Okun's law for the UK in July 2011. We developed an integral version of Okun's law and applied the LSQ method to estimate coefficient in :

u(t) = u(t0) + bln[G/G0] + a(t-t0) (1)

where u(t) is the predicted rate of unemployment at time t, G is thelevel of real GDP per capita, a and b are empirical (LSQ) coefficients. The best-fit (Okun's) model minimizing the RMS error of the cumulative model (1) is as follows:

du = -0.39dlnG + 0.63 (2)

The most recent estimate on the unemployment rate in the UK is 8.4% for the fourth quarter of 2011 as reported by the NSO for the economically active population between 16 and 64 years of age. The Conference Board has also published an estimate of real GDP per capita for 2011. Figure 1 depicts the observed and predicted curves of the unemployment rate, including the rates for 2011. The overall agreement is very good but the current rate of unemployment is lower than the predicted one by 0.6%. Figure 1 suggests that the rate of unemployment has been driven by real economic growth and one can expect the rate to grow to the level of 9.0%. The will be no decease in the rate of unemployment if the growth rate of real GDP per growth does not exceed (0.63/0.39=) 1.63% per year. In 2011, this rate was only 0.09%.

Figure 1. The observed and predicted rate of unemployment in the UK between 1971 and 2011.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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