DP10910 Forecasting Unemployment across Countries: the Ins and Outs

Author(s): Régis Barnichon, Paula Garda
Publication Date: November 2015
Keyword(s): steady-state unemployment, stock-flow model
JEL(s): E24, E27, J6
Programme Areas: Labour Economics, Monetary Economics and Fluctuations
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=10910

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.