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Modeling unemployment as an inventory: A multicointegration approach

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  • Demiralp, Berna
  • Gantt, Bonnie B.
  • Selover, David D.

Abstract

We examine the dynamic phenomenon of unemployment as a constantly changing inventory of unemployed individuals. We focus on the possibility raised by Elsby et al. (2009) of an innate “inseparability” between the flows into and out of unemployment. Multicointegration, introduced by Granger and Lee (1989), offers a natural way to model the level of unemployment as an inventory. We find that there is multicointegration between inflows into and outflows from unemployment and the level of unemployment itself. By identifying this multicointegrating relationship, we are able to specify an error correction model for unemployment, improving forecasting ability.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Macroeconomics.

Volume (Year): 33 (2011)
Issue (Month): 4 ()
Pages: 724-737

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Handle: RePEc:eee:jmacro:v:33:y:2011:i:4:p:724-737

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Web page: http://www.elsevier.com/locate/inca/622617

Related research

Keywords: Unemployment; Employment; Multicointegration; Labor market flows; Inventory; Unemployed workers; Labor force;

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  1. Engle, Robert F & Granger, Clive W J, 1987. "Co-integration and Error Correction: Representation, Estimation, and Testing," Econometrica, Econometric Society, vol. 55(2), pages 251-76, March.
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  10. Robert J. Barro, 1997. "Macroeconomics, 5th Edition," MIT Press Books, The MIT Press, edition 5, volume 1, number 0262024365.
  11. Lori Leachman & Alan Bester & Guillermo Rosas & Peter Lange, 2005. "Multicointegration and Sustainability of Fiscal Practices," Economic Inquiry, Western Economic Association International, vol. 43(2), pages 454-466, April.
  12. Lee, Tae-Hwy, 1996. "Stock Adjustment for Multicointegrated Series," Empirical Economics, Springer, vol. 21(4), pages 633-39.
  13. Steven J. Davis & R. Jason Faberman & John Haltiwanger, 2006. "The Flow Approach to Labor Markets: New Data Sources and Micro-Macro Links," Journal of Economic Perspectives, American Economic Association, vol. 20(3), pages 3-26, Summer.
  14. Johansen, S., 1991. "A Statistical Analsysis of Cointegration for I(2) Variables," Papers 77, Helsinki - Department of Economics.
  15. Engsted, Tom & Gonzalo, Jesus & Haldrup, Niels, 1997. "Testing for multicointegration," Economics Letters, Elsevier, vol. 56(3), pages 259-266, November.
  16. Haldrup, Niels, 1994. "The asymptotics of single-equation cointegration regressions with I(1) and I(2) variables," Journal of Econometrics, Elsevier, vol. 63(1), pages 153-181, July.
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