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The Current Depth-of-Recession and Unemployment-Rate Forecasts

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Author Info
Randall Parker (East Carolina University)
Philip Rothman (East Carolina University)

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Abstract

Building upon Beaudry and Koop's (1993) analysis, we consider a "current depth of the recession" (CDR) variable in modeling the time-series behavior of the postwar quarterly U.S. unemployment rate. The CDR approach is consistent with the state-dependent behavior in the unemployment rate documented in the business-cycle asymmetry literature. We show that while the CDR effect is significant in-sample, no statistically significant out-of-sample forecast improvement is obtained relative to the linear alternative. Augmenting an AR(2) model by inclusion of the CDR term, however, does not significantly worsen the out-of-sample forecast performance.

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Publisher Info
Article provided by Berkeley Electronic Press in its journal Studies in Nonlinear Dynamics & Econometrics.

Volume (Year): 2 (1998)
Issue (Month): 4 ()
Pages: 159-177
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Handle: RePEc:bep:sndecm:2:1998:4:159-177

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Related research
Keywords: nonlinearity business cycle asymmetry depth of recession forecasting

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Bradley, Michael D & Jansen, Dennis W, 1997. "Nonlinear Business Cycle Dynamics: Cross-country Evidence on the Persistence of Aggregate Shocks," Economic Inquiry, Oxford University Press, vol. 35(3), pages 495-509, July.
  2. Parker, Elliott, 2000. "Introduction," China Economic Review, Elsevier, vol. 11(3), pages 211-212. [Downloadable!] (restricted)
  3. Beaudry, Paul & Koop, Gary, 1993. "Do recessions permanently change output?," Journal of Monetary Economics, Elsevier, vol. 31(2), pages 149-163, April. [Downloadable!] (restricted)
  4. Philip Rothman, 1998. "Forecasting Asymmetric Unemployment Rates," The Review of Economics and Statistics, MIT Press, vol. 80(1), pages 164-168, February. [Downloadable!] (restricted)
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  5. Potter, Simon M, 1995. "A Nonlinear Approach to US GNP," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 10(2), pages 109-25, April-Jun. [Downloadable!] (restricted)
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  6. Koop, Gary & Pesaran, M. Hashem & Potter, Simon M., 1996. "Impulse response analysis in nonlinear multivariate models," Journal of Econometrics, Elsevier, vol. 74(1), pages 119-147, September. [Downloadable!] (restricted)
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Cited by:
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  1. Gunnar Bårdsen & Stan Hurn & Zoë McHugh, 2002. "A smooth-transition model of the Australian unemployment rate," Working Paper Series 1002, Department of Economics, Norwegian University of Science and Technology, revised 01 Jul 2003. [Downloadable!]
  2. Guglielmo Maria Caporale & Luis A. Gil-Alana, 2005. "Non-Linearities And Fractional Integration In The Us Unemployment Rate," Economics and Finance Discussion Papers 05-17, Economics and Finance Section, School of Social Sciences, Brunel University. [Downloadable!]
  3. Matthews, Kent & Minford, Patrick & Naraidoo, Ruthira, 2006. "Vicious and Virtuous Circles - The Political Economy of Unemployment in Interwar UK and USA," Cardiff Economics Working Papers E2006/7, Cardiff University, Cardiff Business School, Economics Section.
    Other versions:
  4. Jerry Coakley & Ana-María Fuertes & Gylfi Zoega, 2001. "Evaluating the Persistence and Structuralist Theories of Unemployment from a Nonlinear Perspective," Studies in Nonlinear Dynamics & Econometrics, Berkeley Electronic Press, vol. 5(3), pages 1078-1078. [Downloadable!] (restricted)
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