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Short-term forecasting of the US unemployment rate

Benedikt Maas

MPRA Paper from University Library of Munich, Germany

Abstract: This paper aims to assess whether Google search data is useful when predicting the US unemployment rate among other more traditional predictor variables. A weekly Google index is derived from the keyword “unemployment” and is used in diffusion index variants along with the weekly number of initial claims and monthly estimated latent factors. The unemployment rate forecasts are generated using MIDAS regression models that take into account the actual frequencies of the predictor variables. The forecasts are made in real-time and the forecasts of the best forecasting models exceed, for the most part, the root mean squared forecast error of two benchmarks. However, as the forecasting horizon increases, the forecasting performance of the best diffusion index variants decreases over time, which suggests that the forecasting methods proposed in this paper are most useful in the short-term.

Keywords: Forecasting; Unemployment rate; MIDAS; Google Trends (search for similar items in EconPapers)
JEL-codes: C32 C53 C55 E32 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-big, nep-for, nep-mac and nep-ore
Date: 2019-04-16
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