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Forecasting Australian Unemployment Rates

Author

Listed:
  • Max Stevenson

    () (University of Technology, Sydney)

  • Maurice Peat

    (University of Technology, Sydney)

Abstract

Cyclical asymmetry has been recognized as a non-linear phenomenon in recent studies examining unemployment rate time series. The probabilistic structure of such time series is different during economic upswings and downswings. So, with forecasting unemployment rates in mind, it seems intuitive that models should reflect this change in structure by incorporating non-linearities. This allows for the switching in optimizing behaviour between different phases of the business cycle. Accordingly, this paper evaluates the point forecasts from models of the monthly, aggregate Australian unemployment rate series; these models being drawn from both the linear and non-linear classes. The non-linear model is based on a standard logistic smooth transition autoregressive (LSTAR) model of unemployment which includes a lagged level term and a seasonal, rather than first-difference transition variable. Forecasts from this model are evaluated against the best-fitting linear autoregressive (AR) alternative. Dynamic point forecasts over twenty-four months, suggest that the LSTAR forecasts are more accurate than the linear AR alternative. However, there is no statistical difference between the forecasts from both models on a one-to-twelve step-ahead basis.

Suggested Citation

  • Max Stevenson & Maurice Peat, 2000. "Forecasting Australian Unemployment Rates," Australian Journal of Labour Economics (AJLE), Bankwest Curtin Economics Centre (BCEC), Curtin Business School, vol. 4(1), pages 41-55, March.
  • Handle: RePEc:ozl:journl:v:4:y:2001:i:1:p:41-55
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    References listed on IDEAS

    as
    1. Peat, Maurice & Stevenson, Max, 1996. "Asymmetry in the business cycle: Evidence from the Australian labour market," Journal of Economic Behavior & Organization, Elsevier, vol. 30(3), pages 353-368, September.
    2. Gerard A. Pfann & Franz C. Palm, 1993. "Asymmetric Adjustment Costs in Non-linear Labour Demand Models for the Netherlands and U.K. Manufacturing Sectors," Review of Economic Studies, Oxford University Press, vol. 60(2), pages 397-412.
    3. Terasvirta, T & Anderson, H M, 1992. "Characterizing Nonlinearities in Business Cycles Using Smooth Transition Autoregressive Models," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 7(S), pages 119-136, Suppl. De.
    4. Layard, Richard & Nickell, Stephen & Jackman, Richard, 2005. "Unemployment: Macroeconomic Performance and the Labour Market," OUP Catalogue, Oxford University Press, number 9780199279173.
    5. Rothman, Philip, 1991. "Further evidence on the asymmetric behavior of unemployment rates over the business cycle," Journal of Macroeconomics, Elsevier, vol. 13(2), pages 291-298.
    6. Skalin, Joakim & Ter svirta, Timo, 2002. "Modeling Asymmetries And Moving Equilibria In Unemployment Rates," Macroeconomic Dynamics, Cambridge University Press, vol. 6(02), pages 202-241, April.
    7. Burgess, Simon M, 1988. "Employment Adjustment in UK Manufacturing," Economic Journal, Royal Economic Society, vol. 98(389), pages 81-103, March.
    8. Wesley Clair Mitchell, 1927. "Business Cycles: The Problem and Its Setting," NBER Books, National Bureau of Economic Research, Inc, number mitc27-1, July.
    9. Philip Rothman, 1998. "Forecasting Asymmetric Unemployment Rates," The Review of Economics and Statistics, MIT Press, vol. 80(1), pages 164-168, February.
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    Citations

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    Cited by:

    1. Patrick J. Wilson & L.J. Perry, 2004. "Forecasting Australian Unemployment Rates using Spectral Analysis," Australian Journal of Labour Economics (AJLE), Bankwest Curtin Economics Centre (BCEC), Curtin Business School, vol. 7(4), pages 459-480, December.
    2. Amaral, Luiz Felipe & Souza, Reinaldo Castro & Stevenson, Maxwell, 2008. "A smooth transition periodic autoregressive (STPAR) model for short-term load forecasting," International Journal of Forecasting, Elsevier, vol. 24(4), pages 603-615.

    More about this item

    Keywords

    Macroeconomics; Employment; Unemployment; Wages; Wage Indexation Unemployment; Models; Duration; Incidence; and Job Search Forecasting and Other Model Applications;

    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
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods

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