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A Quest for Leading Indicators of the Turkish Unemployment Rate

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  • H. Burcu Gurcihan
  • Gonul Sengul
  • Arzu Yavuz

Abstract

This paper examines various variables that are likely to be associated with the Turkish non-agricultural unemployment rate in search of indicators to summarize and forecast the state of the labor market. We consider a total of 72 series that reflect aggregate economic activity, labor market conditions, expectations over future economic activity, global economic trends and credit conditions. We use Granger causality tests, correlation analyses and individual out of sample forecast performance of these series to assess their informativeness about the unemployment rate. We find that Business Tendency Survey indicators and some series that measure the global economic conditions satisfy all three criteria of informativeness. Moreover, the composite index constructed from series selected based upon out of sample predictive power improves short-term forecast performance of the autoregressive benchmark model, where we use only lagged values of the unemployment rate.

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Paper provided by Research and Monetary Policy Department, Central Bank of the Republic of Turkey in its series Working Papers with number 1341.

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Date of creation: 2013
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Handle: RePEc:tcb:wpaper:1341

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Keywords: Leading Indicator; Unemployment Rate; GrangerCausality Test;

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  1. Edda Claus, . "Constructing NEO: A Near-term Employment Outlook," Working Papers-Department of Finance Canada, Department of Finance Canada 2001-07, Department of Finance Canada.
  2. Michael Funke & Harm Bandholz, 2003. "In search of leading indicators of economic activity in Germany," Journal of Forecasting, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 22(4), pages 277-297.
  3. Sumru Altug & Erhan Uluceviz, 2011. "Leading Indicators of Real Activity and Inflation for Turkey, 2001-2010," Koç University-TUSIAD Economic Research Forum Working Papers, Koc University-TUSIAD Economic Research Forum 1134, Koc University-TUSIAD Economic Research Forum.
  4. Newey, Whitney K & West, Kenneth D, 1987. "A Simple, Positive Semi-definite, Heteroskedasticity and Autocorrelation Consistent Covariance Matrix," Econometrica, Econometric Society, Econometric Society, vol. 55(3), pages 703-08, May.
  5. Auerbach, Alan J, 1982. "The Index of Leading Indicators: "Measurement without Theory," Thirty-Five Years Later," The Review of Economics and Statistics, MIT Press, vol. 64(4), pages 589-95, November.
  6. Arturo Estrella & Frederic S. Mishkin, 1998. "Predicting U.S. Recessions: Financial Variables As Leading Indicators," The Review of Economics and Statistics, MIT Press, vol. 80(1), pages 45-61, February.
  7. James H. Stock & Mark W. Watson, 1989. "New Indexes of Coincident and Leading Economic Indicators," NBER Chapters, National Bureau of Economic Research, Inc, in: NBER Macroeconomics Annual 1989, Volume 4, pages 351-409 National Bureau of Economic Research, Inc.
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  10. Granger, C W J, 1969. "Investigating Causal Relations by Econometric Models and Cross-Spectral Methods," Econometrica, Econometric Society, Econometric Society, vol. 37(3), pages 424-38, July.
  11. David E. Rapach & Jack K. Strauss, 2008. "Forecasting US employment growth using forecast combining methods," Journal of Forecasting, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 27(1), pages 75-93.
  12. Francis X. Diebold & Glenn D. Rudebusch, 1987. "Scoring the leading indicators," Special Studies Papers, Board of Governors of the Federal Reserve System (U.S.) 206, Board of Governors of the Federal Reserve System (U.S.).
  13. Philip Rothman, 1998. "Forecasting Asymmetric Unemployment Rates," The Review of Economics and Statistics, MIT Press, vol. 80(1), pages 164-168, February.
  14. Christiaan Heij & Dick van Dijk & Patrick J.F. Groenen, 2011. "Forecasting with Leading Indicators by means of the Principal Covariate Index," OECD Journal: Journal of Business Cycle Measurement and Analysis, OECD Publishing,CIRET, OECD Publishing,CIRET, vol. 2011(1), pages 73-92.
  15. Hsiao, Cheng, 1981. "Autoregressive modelling and money-income causality detection," Journal of Monetary Economics, Elsevier, Elsevier, vol. 7(1), pages 85-106.
  16. Marcellino, Massimiliano, 2006. "Leading Indicators," Handbook of Economic Forecasting, Elsevier, Elsevier.
  17. Aslihan Atabek & Evren Erdogan Cosar & Saygin Sahin�Z, 2005. "A New Composite Leading Indicator for Turkish Economic Activity," Emerging Markets Finance and Trade, M.E. Sharpe, Inc., M.E. Sharpe, Inc., vol. 41(1), pages 45-64, January.
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