Working Paper: CEPR ID: DP10910
Authors: Rgis Barnichon; Paula Garda
Abstract: This paper evaluates the flow approach to unemployment forecasting proposed by Barnichon and Nekarda (2012) for a set of OECD countries characterized by very different labor markets. We find that the flow approach yields substantial improvements in forecast accuracy over professional forecasts for all countries, with especially large improvements at longer horizons (one-year ahead forecasts) for European countries. Moreover, the flow approach has the highest predictive ability during recessions and turning points, when unemployment forecasts are most valuable.
Keywords: steady-state unemployment; stock-flow model
JEL Codes: E24; E27; J6
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| labor market flows (J69) | unemployment forecasting accuracy (E27) |
| inflow and outflow rates (F21) | future unemployment levels (J64) |
| flow approach (E10) | forecast accuracy (C53) |
| flow approach (E10) | one-year-ahead forecasts accuracy (C53) |
| flow approach during economic downturns (E32) | forecast accuracy (C53) |
| flow approach during turning points (E32) | forecast accuracy (C53) |