Unemployment Variation Over the Business Cycles: A Comparison of Forecasting Models
Journal of Forecasting, Forthcoming
31 Pages Posted: 29 Feb 2004 Last revised: 4 Oct 2013
Date Written: August 2004
Abstract
Asymmetry has been well documented in the business cycle literature. The asymmetric business cycle suggests that major macroeconomic series, such as a country's unemployment rate, are non-linear and, therefore, the use of linear models to explain their behavior and forecast their future values may not be appropriate. Many researchers have focused on providing evidence for the non-linearity in the unemployment series. Only recently have there been some developments in applying non-linear models to estimate and forecast unemployment rates. A major concern of non-linear modeling is the model specification problem; it is very hard to test all possible non-linear specifications, and to select the most appropriate specification for a particular model.
Artificial Neural Network (ANN) models provide a solution to the difficulty of forecasting unemployment over the asymmetric business cycle. ANN models are non-linear, do not rely upon the classical regression assumptions, are capable of learning the structure of all kinds of patterns in a data set with a specified degree of accuracy and can then use this structure to forecast future values of the data. In this paper, we apply two ANN models, a back-propagation model and a generalized regression neural network model to estimate and forecast postwar aggregate unemployment rates in the US, Canada, UK, France, and Japan. We compare the out-of-sample forecast results obtained by the ANN models with those obtained by several linear and non-linear times series models currently used in the literature. It is shown that the artificial neural network models are able to forecast the unemployment series as well as, and in some cases, better than, the other univariate econometrics time series models in our test.
Keywords: Asymmetric Unemployment Rates, Non-linear Time Series Models, Backpropagation, Generalized Regression Neural Network
JEL Classification: C22, C45, C53, E37
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
Asymmetric Labor Force Participation Decisions Over the Business Cycle: Evidence from U.S. Microdata
By John Robertson and Julie L. Hotchkiss
-
International Labour Force Participation Rates by Gender: Unit Root or Structural Breaks?
By Zeynel Abidin Ozdemir, Mehmet Balcilar, ...
-
International Labour Force Participation Rates by Gender: Unit Root or Structural Breaks?
By Zeynel Abidin Ozdemir, Mehmet Balcilar, ...
-
Assessing the Impact of Education and Marriage on Labor Market Exit Decisions of Women
By Julie L. Hotchkiss, M. Melinda Pitts, ...
-
Are Labor Force Participation Rates Really Non-Stationary? Evidence from Three OECD Countries
By Zeynel Abidin Ozdemir, Mehmet Balcilar, ...