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On the Usefulness of Constant Gain Least Squares when Forecasting the Unemployment Rate
Finnish Tax Administration.
Svenskt näringsliv, Stockholm, Sweden.
National Institute of Economic Research, Stockholm, Sweden.ORCID iD: 0000-0002-4840-7649
2014 (English)In: Applied Economics Quarterly, ISSN 1611-6607, Vol. 60, no 4, p. 315-336Article in journal (Refereed) Published
Abstract [en]

In this paper, we assess the usefulness of constant gain least squares (CGLS) when forecasting the unemployment rate. Using quarterly data from 1970 to 2009, we conduct an out-of-sample forecast exercise in which univariate autoregressive models for the unemployment rate in Australia, Sweden, the United Kingdom and the United States are employed. Results show that CGLS very rarely outperforms OLS. At horizons of six to eight quarters, OLS is always associated with higher forecast precision, regardless of model size or gain employed for Australia, Sweden and the United States. Our findings suggest that while CGLS has been shown valuable when forecasting certain macroeconomic time series, it has shortcomings when forecasting the unemployment rate. One problematic feature is found to be an increased tendency for the autoregressive model to have explosive dynamics when estimated with CGLS.

Place, publisher, year, edition, pages
Berlin: Duncker & Humblot , 2014. Vol. 60, no 4, p. 315-336
Keywords [en]
Out-of-sample forecasts
National Category
Economics
Research subject
Economics
Identifiers
URN: urn:nbn:se:oru:diva-61623DOI: 10.3790/aeq.60.4.315OAI: oai:DiVA.org:oru-61623DiVA, id: diva2:1150108
Available from: 2017-10-17 Created: 2017-10-17 Last updated: 2018-06-25Bibliographically approved

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Österholm, Pär

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  • de-DE
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  • nn-NB
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Output format
  • html
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  • asciidoc
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