The Current Depth-of-Recession and Unemployment-Rate Forecasts

Parker Randall E. () and Philip Rothman ()
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Parker Randall E.: East Carolina University East Carolina University

Studies in Nonlinear Dynamics & Econometrics, 1998, vol. 2, issue 4, 10

Abstract: Building upon Beaudry and Koop's (1993) analysis, we consider a "current depth of the recession" (CDR) variable in modeling the time-series behavior of the postwar quarterly U.S. unemployment rate. The CDR approach is consistent with the state-dependent behavior in the unemployment rate documented in the business-cycle asymmetry literature. We show that while the CDR effect is significant in-sample, no statistically significant out-of-sample forecast improvement is obtained relative to the linear alternative. Augmenting an AR(2) model by inclusion of the CDR term, however, does not significantly worsen the out-of-sample forecast performance.

Keywords: nonlinearity; business cycle asymmetry; depth of recession; forecasting (search for similar items in EconPapers)
Date: 1998
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DOI: 10.2202/1558-3708.1036

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