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Forecasting the UK Unemployment Rate: Model Comparisons

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  • Floros, Ch.

Abstract

This paper compares the out-of-sample forecasting accuracy of time series models using the Root Mean Square, Mean Absolute and Mean Absolute Percent Errors. We evaluate the performance of the competing models covering the period January 1971 to December 2002. The forecasting sample (January 1996 – December 2002) is divided into four sub-periods. First, for total forecasting sample, we find that MA(4)-ARCH(1) provides superior forecasts of unemployment rate. On the other hand, two forecasting samples show that the MA(4) model performs well, while both MA(1) and AR(4) prove to be the best forecasting models for the other two forecasting periods. The empirical evidence derived from our investigation suggests a close relationship between forecasting theory and labour market conditions. Our findings bring forecasting methods nearer to the realities of UK labour market.

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File URL: http://www.usc.es/economet/reviews/ijaeqs244.pdf
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Bibliographic Info

Article provided by Euro-American Association of Economic Development in its journal International Journal of Applied Econometrics and Quantitative Studies .

Volume (Year): 2 (2005)
Issue (Month): 4 ()
Pages: 57-72

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Handle: RePEc:eaa:ijaeqs:v:2:y2005:i:4_4

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Related research

Keywords: UK; Unemployment; Forecasting; AR; MA; GARCH;

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  1. Bollerslev, Tim, 1986. "Generalized autoregressive conditional heteroskedasticity," Journal of Econometrics, Elsevier, vol. 31(3), pages 307-327, April.
  2. Lawrence R. Glosten & Ravi Jagannathan & David E. Runkle, 1993. "On the relation between the expected value and the volatility of the nominal excess return on stocks," Staff Report 157, Federal Reserve Bank of Minneapolis.
  3. D. A. Peel & A. E. H. Speight, 2000. "Threshold nonlinearities in unemployment rates: further evidence for the UK and G3 economies," Applied Economics, Taylor & Francis Journals, vol. 32(6), pages 705-715.
  4. Proietti, Tommaso, 2003. "Forecasting the US unemployment rate," Computational Statistics & Data Analysis, Elsevier, vol. 42(3), pages 451-476, March.
  5. Gil-Alana, Luis A, 2001. "A Fractionally Integrated Exponential Model for UK Unemployment," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 20(5), pages 329-40, August.
  6. Philip Rothman, 1998. "Forecasting Asymmetric Unemployment Rates," The Review of Economics and Statistics, MIT Press, vol. 80(1), pages 164-168, February.
  7. Parker Randall E. & Rothman Philip, 1998. "The Current Depth-of-Recession and Unemployment-Rate Forecasts," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 2(4), pages 1-10, January.
  8. Geraint Johnes, 1999. "Forecasting unemployment," Applied Economics Letters, Taylor & Francis Journals, vol. 6(9), pages 605-607.
  9. Engle, Robert F, 1982. "Autoregressive Conditional Heteroscedasticity with Estimates of the Variance of United Kingdom Inflation," Econometrica, Econometric Society, vol. 50(4), pages 987-1007, July.
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