Lessons for Forecasting Unemployment in the U.S.: Use Flow Rates, Mind the Trend

Brent Meyer and Murat Tasci

No 1502, Working Papers (Old Series) from Federal Reserve Bank of Cleveland

Abstract: This paper evaluates the ability of autoregressive models, professional forecasters, and models that leverage 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 is useful in forecasting the unemployment rate. We find that any approach that leverages 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 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.

Keywords: Unemployment Forecasting; Natural Rate; Unemployment Flows; Labor Market Search (search for similar items in EconPapers)
JEL-codes: C53 E24 E32 J64 (search for similar items in EconPapers)
Pages: 41 pages
Date: 2015-02-13
New Economics Papers: this item is included in nep-for, nep-lab and nep-mac
References: Add references at CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
https://doi.org/10.26509/frbc-wp-201502 Persistent link
https://www.clevelandfed.org/-/media/project/cleve ... nd-the-trend-pdf.pdf Full text (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fip:fedcwp:1502

Ordering information: This working paper can be ordered from

DOI: 10.26509/frbc-wp-201502

Access Statistics for this paper

More papers in Working Papers (Old Series) from Federal Reserve Bank of Cleveland Contact information at EDIRC.
Bibliographic data for series maintained by 4D Library ().