Stochastic Modeling and Forecasting of Health Changes in the U.S. Population

34 Pages Posted: 21 Sep 2015

See all articles by Ying Yang

Ying Yang

University of Rhode Island - Department of Economics; University of Rhode Island - College of Business Administration

Anja De Waegenaere

Tilburg University - Department of Econometrics & OR, Netspar, and CentER

Bertrand Melenberg

Tilburg University - Center for Economic Research (CentER)

Date Written: June 23, 2014

Abstract

This paper proposes a model for self-assessed health at an aggregate level that allows to generate age- and gender-specific stochastic forecasts of future health. We decompose health status into a time effect and an age effect. We then further decompose the time effect into observed macroeconomic quantities (GDP and unemployment rate) and an unobserved latent time factor. We use data on the U.S. population's self-assessed health for both males and females to estimate the model. The estimation results show that trends in health can be largely captured by trends in the observed macroeconomic quantities. Next, based on forecasts of the observed and the unobserved time effects, using a vector auto regression (VAR) model, we present forecasts for future health together with the corresponding forecasting uncertainty, showing that there is no clear future trend upward or downward. A backtesting analysis suggests that our approach with macroeconomic quantities significantly improves the forecasting accuracy for future health development compared with a simple extrapolation based approach. It also outperforms the model without taking into account observed variables.

Keywords: Stochastic process, Lee-Carter model, Macroeconomic fluctuations, Forecasts

JEL Classification: I15, C32, E32

Suggested Citation

Yang, Ying and De Waegenaere, Anja M.B. and Melenberg, Bertrand, Stochastic Modeling and Forecasting of Health Changes in the U.S. Population (June 23, 2014). Available at SSRN: https://ssrn.com/abstract=2662976 or http://dx.doi.org/10.2139/ssrn.2662976

Ying Yang (Contact Author)

University of Rhode Island - Department of Economics ( email )

Chaffe Hall
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401-874-5896 (Phone)

University of Rhode Island - College of Business Administration ( email )

Kingston, RI 02881
United States

Anja M.B. De Waegenaere

Tilburg University - Department of Econometrics & OR, Netspar, and CentER ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

Bertrand Melenberg

Tilburg University - Center for Economic Research (CentER) ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands
+31 13 466 2730 (Phone)

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