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Constructing NEO: A Near-term Employment Outlook

Listed author(s):
  • Edda Claus

The goal of this paper was to create a short-term forecasting model for total employment in Canada. In an attempt to increase forecasting accuracy compared to typical forecasting models, a composite index of leading indicators of employment was created. The index performs very well in signalling cyclical changes in employment and was included, as an explanatory variable, in a quarterly indicator model of employment. One-quarter out-of-sample forecasts were generated over the period of 1993Q1 to 1999Q3. The model performs extremely well. The mean absolute forecast error over the testing period is only thirty-six per cent of the average quarterly changes in employment over that same period. The out-of-sample forecasts were also compared to forecasts of four alternative models. The indicator model clearly outperforms the alternative models in terms of forecasting performance and promises to be an effective tool for forecasting quarterly changes in Canadian employment. L’objectif de cette étude était de construire un modèle de prévision à court terme de l’emploi total au Canada. Afin de réduire l’erreur de prévision telle que révèlent les modèles traditionnels, j’ai créé un indice composite d’indicateurs avancés de l’emploi. L’indice signale clairement les changements cycliques dans l’emploi canadien. Je l’ai alors inclus, comme variable explicative, dans un modèle d’indicateur. Mes résultats empiriques montrent que la performance prédictive de ce modèle est très bonne. L’erreur moyenne absolue des prévisions hors échantillon un trimestre à l’avance pour la période de 1993T1 à 1999T3 n’est que trente-six pour cent de la variation moyenne de l’emploi au cours de cette même période. Pour mettre à l’épreuve la performance relative de mon modèle, j’ai comparé ces prévisions à ceux de quatre modèles alternatifs. Le modèle d’indicateur est clairement dominant au niveau des prévisions un trimestre à l’avance. Bref, le modèle indicateur pourrait devenir un outil très utile pour prédire, à court terme, les variations de l’emploi canadien.

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Paper provided by Department of Finance Canada in its series Working Papers-Department of Finance Canada with number 2001-07.

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Date of creation:
Handle: RePEc:fca:wpfnca:2001-07
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