Abstract

Building upon Beaudry and Koop's (1993) analysis, we consider a "current depth of the recession" (CDR) variable in modeling the time-series behavior of the postwar quarterly U.S. unemployment rate. The CDR approach is consistent with the state-dependent behavior in the unemployment rate documented in the business-cycle asymmetry literature. We show that while the CDR effect is significant in-sample, no statistically significant out-of-sample forecast improvement is obtained relative to the linear alternative. Augmenting an AR(2) model by inclusion of the CDR term, however, does not significantly worsen the out-of-sample forecast performance.

Recommended Citation

Randall E. Parker and Philip Rothman (1998) "The Current Depth-of-Recession and Unemployment-Rate Forecasts ", Studies in Nonlinear Dynamics & Econometrics: Vol. 2: No. 4, Article 5.
http://www.bepress.com/snde/vol2/iss4/art5

Related Files

rothman_datacode.zip (3 kB)
Data & Code