Forecasting Unemployment Rates with International Factors
21 Pages Posted: 17 Jan 2020
Date Written: December 28, 2019
In this paper we study international linkages when forecasting unemployment rates in a sample of 24 OECD economies. We propose a Global Unemployment Factor (GUF) and test its predictive ability considering in-sample and out-of-sample exercises. Our main results indicate that the predictive ability of the GUF is heterogeneous across countries. In-sample results are statistically significant for Austria, Belgium, Czech Republic, Finland, France, Ireland, The Netherlands, Portugal, Slovenia, Sweden and United States. Robust statistically significant out-of-sample results are found for Belgium, Czech Republic, France, The Netherlands, Slovenia, Sweden and the United States. This means that the inclusion of the GUF adds valuable information to predict domestic unemployment rates, at least for these last seven countries.
Keywords: Forecasting, unemployment, international factors, time-series models, out-of-sample comparison, nested models
JEL Classification: J60, J64, J01, F22, F44, F47, F43, F41, E24, E27, E32, E37
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