Machine learning may not be as good as expected : Evidence from unemployment rate forecasting
46 Pages Posted: 17 Dec 2019 Last revised: 30 Jul 2021
Date Written: July 30, 2021
This paper proposes a training framework by rolling k-fold cross-validation to compare forecasting performance of several quantitative methods, mainly standard time series and our pre-selected machine learning methods. Using US unemployment rate, we find that: Firstly, individual machine learning constituents may not perform as good as standard time series; secondly, among on constituent basis, SVM (support vector machine) performs the best, the deep learning (RNN-LSTM) unexpectedly performs the worst; thirdly, forecasting averaging evidence shows that the automatic machine learning (autoML, h2o.ai) performs less than our pre-selected machine learning methods, and the averaged standard time series is better than autoML. We conclude that forecasting averaging is a good way to combine diversified forecasts and a suitable combination of methods depends on the data.
Keywords: Forecasting time series, forecasting averaging, machine learning, training by rolling k-fold cross validation
JEL Classification: C53
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