Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/114487
Authors: 
Meyer, Brent
Tasci, Murat
Year of Publication: 
2015
Series/Report no.: 
Working Paper, Federal Reserve Bank of Atlanta 2015-1
Abstract: 
This paper evaluates the ability of autoregressive models, professional forecasters, and models that incorporate unemployment flows to forecast the unemployment rate. We pay particular attention to flows-based approaches - the more reduced-form approach of Barnichon and Nekarda (2012) and the more structural method in Tasci (2012) - to generalize whether data on unemployment flows are useful in forecasting the unemployment rate. We find that any approach that considers unemployment inflow and outflow rates performs well in the near term. Over longer forecast horizons, Tasci (2012) appears to be a useful framework even though it was designed to be mainly a tool to uncover long-run labor market dynamics such as the "natural" rate. Its usefulness is amplified at specific points in the business cycle when the unemployment rate is away from the longer-run natural rate. Judgmental forecasts from professional economists tend to be the single best predictor of future unemployment rates. However, combining those guesses with flows-based approaches yields significant gains in forecasting accuracy.
Subjects: 
unemployment forecasting
natural rate
unemployment flows
labor market search
JEL: 
E24
E32
J64
C53
Document Type: 
Working Paper

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