Assessing inflation in CR using artificial intelligence

Institute of Technology and Business in Ceske Budejovice, School of Expertness and Valuation, Okruzni 517/10, 370 01 Ceske Budejovice, Czech Republic

^* Corresponding author: krulicky@mail.vstecb.cz

Abstract

Research background: Unemployment and inflation are among the basic macroeconomic indicators of the national economy. Both these phenomena are inextricably linked to market economy and have undisputable social and economic impacts on the population of the countries where these processes take place. The relationship between the inflation and unemployment can be expressed by means of Philips curve.

Purpose: The objective of the research is to compile Philips’s curve for the years 2000-2021 and compare the resulting curve with the initial short-run Philips curve.

Methods: The validity of the mutual relationship between unemployment and inflation is examined using the method of neural networks. The data on inflation and unemployment rate are available from the period of 31 January 2020 and 28 February 2021. The data on inflation were obtained from the database of the Czech Statistical Office; the data on unemployment, from the official websites of the Czech National Bank.

Findings & Value added: During the period under review, unemployment rate and inflation fluctuated constantly. Currently, both variables have stabilized at around 3%. Compared the long-term trend, in the years 2008-2009, the inflation rate was higher than unemployment rate. The analysis performed shows that the actual Philips curve for the Czech Republic in the period under review does not copy the initial short-run Philips curve, which indicates that the prediction of inflation rate development cannot be based on the development of unemployment rate, and the development of inflation rate cannot be a basis for exact prediction of unemployment rate development.