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Stochastic levels and duration dependence in US unemployment

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  • de Bruijn, L.P.
  • Franses, Ph.H.B.F.

Abstract

We introduce a new time series model that can capture the properties of data as is typically exemplified by monthly US unemployment data. These data show the familiar nonlinear features, with steeper increases in unem- ployment during economic downswings than the decreases during economic prosperity. At the same time, the levels of unemployment in each of the two states do not seem fixed, nor are the transition periods abrupt. Finally, our model should generate out-of-sample forecasts that mimic the in-sample properties. We demonstrate that our new and flexible model covers all those features, and our illustration to monthly US unemployment data shows its merits, both in and out of sample.

Suggested Citation

  • de Bruijn, L.P. & Franses, Ph.H.B.F., 2015. "Stochastic levels and duration dependence in US unemployment," Econometric Institute Research Papers EI2015-20, Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute.
    • Handle: RePEc:ems:eureir:78710
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    References listed on IDEAS

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    More about this item

    Keywords

    Markov switching; duration dependence; Gibbs sampling; unemployment; stochastic levels;
    All these keywords.

    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C24 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Truncated and Censored Models; Switching Regression Models; Threshold Regression Models
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity

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