Unemployment Forecasts: Room for Improvement?

Yvonne Adema, Kees Folmer, Gerrit Hugo Heuvelen, Sonny Kuijpers, Rob Luginbuhl () and Bas Scheer
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Kees Folmer: CPB Netherlands Bureau of Economic Policy Analysis
Gerrit Hugo Heuvelen: CPB Netherlands Bureau of Economic Policy Analysis
Sonny Kuijpers: CPB Netherlands Bureau of Economic Policy Analysis
Rob Luginbuhl: CPB Netherlands Bureau of Economic Policy Analysis
Bas Scheer: CPB Netherlands Bureau of Economic Policy Analysis

De Economist, 2020, vol. 168, issue 3, No 4, 403-417

Abstract: Abstract During the crisis of 2009–2013 many institutes made large errors in their unemployment forecasts. This paper develops alternative short-run models to improve these forecasts. The models are applied to the Netherlands and compared to the unemployment forecasts of the CPB. A BVAR model performs significantly better than the CPB forecasts. The BVAR can also be used to predict the labor market transition probabilities used in the forecast functions of two-state and three-state stock-flow models of unemployment. This also results in significantly better forecasts. However the combination of these three best-performing models produces the largest gain in forecast accuracy.

Keywords: BVAR; Forecasting; Okun’s law; Stock-flow models; Unemployment (search for similar items in EconPapers)
JEL-codes: E24 E27 J64 (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1007/s10645-020-09363-0

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