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Modeling unemployment as an inventory: A multicointegration approach

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  • Demiralp, Berna
  • Gantt, Bonnie B.
  • Selover, David D.

Abstract

We examine the dynamic phenomenon of unemployment as a constantly changing inventory of unemployed individuals. We focus on the possibility raised by Elsby et al. (2009) of an innate “inseparability” between the flows into and out of unemployment. Multicointegration, introduced by Granger and Lee (1989), offers a natural way to model the level of unemployment as an inventory. We find that there is multicointegration between inflows into and outflows from unemployment and the level of unemployment itself. By identifying this multicointegrating relationship, we are able to specify an error correction model for unemployment, improving forecasting ability.

Suggested Citation

  • Demiralp, Berna & Gantt, Bonnie B. & Selover, David D., 2011. "Modeling unemployment as an inventory: A multicointegration approach," Journal of Macroeconomics, Elsevier, vol. 33(4), pages 724-737.
    • Handle: RePEc:eee:jmacro:v:33:y:2011:i:4:p:724-737
    DOI: 10.1016/j.jmacro.2011.06.005
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    Cited by:

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    3. Lunsford, Kurt G., 2015. "Forecasting residential investment in the United States," International Journal of Forecasting, Elsevier, vol. 31(2), pages 276-285.

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    More about this item

    Keywords

    Unemployment; Employment; Multicointegration; Labor market flows; Inventory; Unemployed workers; Labor force;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
    • J2 - Labor and Demographic Economics - - Demand and Supply of Labor
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes

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