Forecasting the Swedish unemployment rate. VAR vs. transfer function modelling

• The Swedish unemployment rate is forecast using three time series methods: the ARIMA, transfer function and Vector Autoregressive (VAR) models. Within this context, the choice of modelling strategy is discussed. It is found that the forecasting performance of VAR models is improved by explicitly taking account of cointegration between the variables in the model, despite the fact that unemployment is not cointegrated. However, the more parsimonious ARIMA and transfer function models have lower RMSE for all forecasting horizons. It is also found that the additional variables in the VAR models are important for predicting the turning points in the unemployment rate.

Subject headings

SAMHÄLLSVETENSKAP  -- Ekonomi och näringsliv -- Nationalekonomi (hsv//swe)

SOCIAL SCIENCES  -- Economics and Business -- Economics (hsv//eng)

NATURVETENSKAP  -- Matematik -- Sannolikhetsteori och statistik (hsv//swe)

NATURAL SCIENCES  -- Mathematics -- Probability Theory and Statistics (hsv//eng)

Keyword

Cointegration; Forecast evaluation; Model selection; Seasonal unit roots; Turning points

Statistik

Statistics

Publication and Content Type

ref (subject category)

art (subject category)