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Unemployment Forecasts: Room for Improvement?

Author

Listed:
  • Yvonne Adema

    (CPB Netherlands Bureau of Economic Policy Analysis)

  • Kees Folmer

    (CPB Netherlands Bureau of Economic Policy Analysis)

  • Gerrit Hugo Heuvelen

    (CPB Netherlands Bureau of Economic Policy Analysis)

  • Sonny Kuijpers

    (CPB Netherlands Bureau of Economic Policy Analysis)

  • Rob Luginbuhl

    (CPB Netherlands Bureau of Economic Policy Analysis)

  • Bas Scheer

    (CPB Netherlands Bureau of Economic Policy Analysis)

Abstract

During the crisis of 2009–2013 many institutes made large errors in their unemployment forecasts. This paper develops alternative short-run models to improve these forecasts. The models are applied to the Netherlands and compared to the unemployment forecasts of the CPB. A BVAR model performs significantly better than the CPB forecasts. The BVAR can also be used to predict the labor market transition probabilities used in the forecast functions of two-state and three-state stock-flow models of unemployment. This also results in significantly better forecasts. However the combination of these three best-performing models produces the largest gain in forecast accuracy.

Suggested Citation

  • Yvonne Adema & Kees Folmer & Gerrit Hugo Heuvelen & Sonny Kuijpers & Rob Luginbuhl & Bas Scheer, 2020. "Unemployment Forecasts: Room for Improvement?," De Economist, Springer, vol. 168(3), pages 403-417, September.
    • Handle: RePEc:kap:decono:v:168:y:2020:i:3:d:10.1007_s10645-020-09363-0
    DOI: 10.1007/s10645-020-09363-0
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    References listed on IDEAS

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    More about this item

    Keywords

    BVAR; Forecasting; Okun’s law; Stock-flow models; Unemployment;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E27 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Forecasting and Simulation: Models and Applications
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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