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Machine Learning Approaches to Macroeconomic Forecasting

Author

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  • Aaron Smalter Hall

Abstract

Forecasting macroeconomic conditions can be challenging, requiring forecasters to make many discretionary choices about the data and methods they use. Although forecasters underpin the choices they make about models and complexity with economic intuition and judgement, these assumptions can be flawed. {{p}} Machine learning approaches, on the other hand, automate as many of those choices as possible in a manner that is not subject to the discretion of the forecaster. Aaron Smalter Hall applies machine learning techniques to find an optimal forecasting model for the unemployment rate. His results suggest that when supplied with diverse and complex data, a machine learning model can outperform simpler time-series models as well as a consensus of professional forecasters, with better performance at shorter horizons. In particular, his results show that a machine learning model can identify turning points in the unemployment rate earlier than competing methods.

Suggested Citation

  • Aaron Smalter Hall, 2018. "Machine Learning Approaches to Macroeconomic Forecasting," Economic Review, Federal Reserve Bank of Kansas City, issue Q IV, pages 63-81.
    • Handle: RePEc:fip:fedker:00070
    DOI: 10.18651/ER/4q18SmalterHall
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    Cited by:

    1. Anastasios Petropoulos & Vassilis Siakoulis & Konstantinos P. Panousis & Loukas Papadoulas & Sotirios Chatzis, 2023. "Macroeconomic forecasting and sovereign risk assessment using deep learning techniques," Papers 2301.09856, arXiv.org.
    2. Phi-Hung Nguyen & Jung-Fa Tsai & Ihsan Erdem Kayral & Ming-Hua Lin, 2021. "Unemployment Rates Forecasting with Grey-Based Models in the Post-COVID-19 Period: A Case Study from Vietnam," Sustainability, MDPI, vol. 13(14), pages 1-27, July.
    3. Marijn A. Bolhuis & Brett Rayner, 2020. "Deus ex Machina? A Framework for Macro Forecasting with Machine Learning," IMF Working Papers 2020/045, International Monetary Fund.
    4. Marijn A. Bolhuis & Brett Rayner, 2020. "The More the Merrier? A Machine Learning Algorithm for Optimal Pooling of Panel Data," IMF Working Papers 2020/044, International Monetary Fund.
    5. Costa, Alexandre Bonnet R. & Ferreira, Pedro Cavalcanti G. & Gaglianone, Wagner P. & Guillén, Osmani Teixeira C. & Issler, João Victor & Lin, Yihao, 2021. "Machine learning and oil price point and density forecasting," Energy Economics, Elsevier, vol. 102(C).

    More about this item

    Keywords

    Unemployment;

    JEL classification:

    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods

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