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Modeling unemployment as an inventory: A multicointegration approach

Berna Demiralp (), Bonnie B. Gantt and David Selover

Journal of Macroeconomics, 2011, vol. 33, issue 4, 724-737

Abstract: We examine the dynamic phenomenon of unemployment as a constantly changing inventory of unemployed individuals. We focus on the possibility raised by Elsby et al. (2009) of an innate “inseparability” between the flows into and out of unemployment. Multicointegration, introduced by Granger and Lee (1989), offers a natural way to model the level of unemployment as an inventory. We find that there is multicointegration between inflows into and outflows from unemployment and the level of unemployment itself. By identifying this multicointegrating relationship, we are able to specify an error correction model for unemployment, improving forecasting ability.

Keywords: Unemployment; Employment; Multicointegration; Labor market flows; Inventory; Unemployed workers; Labor force (search for similar items in EconPapers)
JEL-codes: C22 E2 E24 J2 J64 (search for similar items in EconPapers)
Date: 2011
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DOI: 10.1016/j.jmacro.2011.06.005

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Handle: RePEc:eee:jmacro:v:33:y:2011:i:4:p:724-737