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A latent variable approach to forecasting the unemployment rate
Author(s) -
Chua Chew Lian,
Lim G. C.,
Tsiaplias Sarantis
Publication year - 2012
Publication title -
journal of forecasting
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.543
H-Index - 59
eISSN - 1099-131X
pISSN - 0277-6693
DOI - 10.1002/for.1210
Subject(s) - unemployment , phillips curve , economics , econometrics , okun's law , unemployment rate , variable (mathematics) , nairu , latent variable , natural rate of unemployment , macroeconomics , mathematics , statistics , mathematical analysis
A forecasting model for unemployment is constructed that exploits the time series properties of unemployment while satisfying the economic relationships specified by Okun's law and the Phillips curve. In deriving the model, we jointly consider the problem of obtaining estimates of the unobserved potential rate of unemployment consistent with Okun's law and the Phillips curve, and associating the potential rate of unemployment with actual unemployment. The empirical example shows that the model clearly outperforms alternative forecasting procedures typically used to forecast unemployment. Copyright © 2011 John Wiley & Sons, Ltd.