Forecasting the unemployment rate using the degree of agreement in consumer unemployment expectations

Oscar Claveria

doi:10.1186/s12651-019-0253-4

Abstract

This study aims to refine unemployment forecasts by incorporating the degree of consensus in consumers’ expectations. With this objective, we first model the unemployment rate in eight European countries using the step-wise algorithm proposed by Hyndman and Khandakar (J Stat Softw 27(3):1–22, 2008). The selected optimal autoregressive integrated moving average (ARIMA) models are then used to generate out-of-sample recursive forecasts of the unemployment rates, which are used as benchmark. Finally, we replicate the forecasting experiment including as predictors both an indicator of unemployment, based on the degree of agreement in consumer unemployment expectations, and a measure of disagreement based on the dispersion of expectations. In both cases, we obtain an improvement in forecast accuracy in most countries. These results reveal that the degree of agreement in consumers’ expectations contains useful information to predict unemployment rates, especially for the detection of turning points.

Highlights

IntroductionThe Great Recession of 2008 and the euro debt crisis have had an important effect on the evolution of unemployment in Europe, there are large cross-country differences
Unemployment is a key macroeconomic variable and is crucial for economic planning
Results and discussion we present the results of the two independent out-of-sample forecasting experiments

Summary

Introduction

The Great Recession of 2008 and the euro debt crisis have had an important effect on the evolution of unemployment in Europe, there are large cross-country differences. Differences are very important in quantitative terms While countries such as Germany and the Netherlands show very low unemployment rates, Mediterranean countries still show very high unemployment rates in spite of large decreases in recent years. These differences across countries have led us to analyse whether the inclusion of the degree of agreement in consumers’ expectations can help improve unemployment rate forecasts in a set of eight long-term member states that comprises this

Objectives

Methods

Results

Conclusion