A Cross-Country Analysis of Unemployment and Bonds with Long-Memory Relations

40 Pages Posted: 10 Mar 2015

See all articles by Thomas Dimpfl

Thomas Dimpfl

University of Tuebingen - Department of Statistics and Econometrics

Tobias Langen

University of Tübingen

Date Written: February 6, 2015

Abstract

We analyze the relationship between unemployment rate changes and government bond yields during and after the most recent financial crisis across nine industrialized countries. The study is conducted on a weekly basis and we therefore nowcast unemployment data, which are only available once a month, on a weekly frequency using Google search query data. In order to account for the time series' long-memory components during the first-stage nowcasting and the second-stage modeling, we draw on Corsi's (2009) heterogeneous autoregressive time series model. In particular, we adapt this idea to a setting of mixed-frequency nowcasting. Our results indicate that Google searches greatly increase the nowcasting accuracy of unemployment rate changes. The impact of an idiosyncratic rise in unemployment on bond yields turns out to be positive for European countries while it is negative for the United States and Australia. The speed of the response also varies. Not unexpectedly, bond yields do not have an impact on unemployment. Our findings have interesting implications for the way shocks are absorbed in economic systems that differ, in particular, with respect to the central bank's core tasks.

Keywords: Nowcasting, Long-memory components, Heterogeneous VAR, Unemployment, Bond yields, Google searches

JEL Classification: G10, G12

Suggested Citation

Dimpfl, Thomas and Langen, Tobias, A Cross-Country Analysis of Unemployment and Bonds with Long-Memory Relations (February 6, 2015). Available at SSRN: https://ssrn.com/abstract=2576345 or http://dx.doi.org/10.2139/ssrn.2576345

Thomas Dimpfl

University of Tuebingen - Department of Statistics and Econometrics ( email )

Germany

Tobias Langen (Contact Author)

University of Tübingen ( email )

Mohlstrasse 36
Tuebingen, Baden-Wuerttemberg 72074
Germany

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
71
Abstract Views
646
rank
366,362
PlumX Metrics