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The Ins and Outs of Forecasting Unemployment: Using Labor Force Flows to Forecast the Labor Market

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  • Regis Barnichon

    (Centre de Recerca en Economia Internacional, Barcelona)

  • Christopher J. Nekarda

    (Board of Governors of the Federal Reserve System)

Abstract

This paper presents a forecasting model of unemployment based on labor force ows data that, in real time, dramatically outperforms the Survey of Professional Forecasters, historical forecasts from the Federal Reserve Board's Greenbook, and basic time-series models. Our model's forecast has a root-mean-squared error about 30 percent below that of the next-best forecast in the near term and performs especially well surrounding large recessions and cyclical turning points. Further, because our model uses information on labor force ows that is likely not incorporated by other forecasts, a combined forecast including our model's forecast and the SPF forecast yields an improvement over the latter alone of about 35 percent for current-quarter forecasts, and 15 percent for next-quarter forecasts, as well as improvements at longer horizons.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Regis Barnichon & Christopher J. Nekarda, 2012. "The Ins and Outs of Forecasting Unemployment: Using Labor Force Flows to Forecast the Labor Market," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 43(2 (Fall)), pages 83-131.
    • Handle: RePEc:bin:bpeajo:v:43:y:2012:i:2012-02:p:83-131
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