Unemployment forecasts, time varying coefficient models and the Okun’s law in Spanish regions

Miquel Clar-Lopez, Jordi López-Tamayo, Raúl Ramos

Abstract


During the Great Recession, output and unemployment responses have differed markedly across Spanish regions. Our objective is to evaluate the relative accuracy of forecasting models based on the Okun’s law compared to alternative approaches. In particular, we want to analyse if a time varying coefficient specification of the Okun’s law provide better forecasts than alternative models in two different periods: a first period from 2002 to 2007 characterized by sustained economic growth in all provinces, and a second period from 2008 to 2013 characterized by the impact of the Great Recession. The obtained results allow us to conclude that, in general, the use of these models improve the forecasting capacity in most regions, but do not provide reliable forecast.

Full Text:

PDF

References


Adanu, K. (2005), A cross-province comparison of Okun's coefficient for Canada, Applied Economics, 37 (5), 561-570.

Apergis, N., Rezitis, A. (2003), An examination of Okun's law: Evidence from regional areas in Greece, Applied Economics, 35 (10), 1147-1151.

Ball, L., Jalles, J.T. and Loungani, P. (2014), Do forecasters believe in Okun's Law? An assessment of unemployment and output forecasts, International Journal of Forecasting, forthcoming.

Ballesteros Gallardo, J. A., Núñez Hernández, F., Usabiaga Ibáñez, C. (2012), La Ley Okun para las regiones españolas: Distintas aproximaciones econométricas, Instituto de Estadística y Cartografía de Andalucía, Documentos de Trabajo 4/2012.

Chinn, M.D., Ferrara, L. and Mignon, V. (2013) Post-recession us employment through the lens of a non-linear Okun’s law, National Bureau of Economic Research, Working Paper 19047.

Christopoulos, D. K. (2004), The relationship between output and unemployment: Evidence from Greek regions, Papers in Regional Science, 83 (3), 611-620.

Durech, R., Minea, A., Mustea, L., Slusna, L. (2014), Regional evidence on Okun's law in Czech Republic and Slovakia, Economic Modelling, 42, 57-65.

Dziechciarz, J. (1989) Changing and random coefficient models. A survey. In Hackl, P. (ed.), Seasonal Analysis and Forecasting of Economic Structural Change, Springer Verlag, Berlin.

Elliott, G., Timmermann, A. (2008), Economic forecasting, Journal of Economic Literature, 46 (1), 3-56.

Engle, R.F. and Watson, M.W. (1987) The Kalman filter: applications to forecasting and rational-expectations models. In Bewley, T.F. (ed.), Advances in Econometrics: Fifth World Congress, Econometric Society Monograph, vol. 13, Cambridge University Press: Cambridge, 245-283.

Franses, P.H., Mcaleer, M., Legerstee, R. (2014), Evaluating macroeconomic forecasts: A concise review of some recent developments, Journal of Economic Surveys, 28 (2), 195-208.

Freeman, D.G. (2000), Regional tests of Okun's law, International Advances in Economic Research, 6 (3), 557-570.

Funke, M. (1992) Time-Series Forecasting of the German Unemployment Rate, Journal of Forecasting, 11, 111-125

Guisinger, A.Y. and Sinclair, T.M. (2014), Okun's Law in real time, International Journal of Forecasting, forthcoming.

Huang, H.C., Yeh, C.C. (2013), Okun's law in panels of countries and states, Applied Economics, 45 (2), 191-199.

Kangasharju, A., Tavera C., and Nijkamp, P. (2012), Regional Growth and Unemployment: The Validity of Okun's Law for the Finnish Regions, Spatial Economic Analysis, 7 (3), 381-395.

Karfakis, C., Katrakilidis, C., Tsanana, E. (2014), Does Output Predict Unemployment? A Look at Okun's Law in Greece, International Labour Review, forthcoming.

Knotek, E. (2007), How useful is Okun’s Law?, Federal Reserve Bank of Kansas City Economic Review, Fourth Quarter, 73-103.

Lopez-Bazo, E., del Barrio, T. and Artís, M. (2005) Geographical distribution of unemployment in Spain, Regional Studies, 39(3), 305-318.

Marie-Estelle, B., Facchini, F. (2013), Okun's law in the French regions: A cross-regional comparison, Economics Bulletin, 33 (1), 420-433.

Martín-Román, A. and Sylvina-Porras, M. (2012), La ley de Okun en España ¿por qué existen diferencias regionales?, Reunion de Estudios Regionales, Bilbao.

Min, C. and Zellner; A. (1993) Bayesian and non-bayesian methods for combining models and forecasts with applications to forecasting international growth rates, Journal of Econometrics, 56, 89-118.

Okun, A. M. (1962) Potential GNP: Its Measurement and Significance, Proceedings of the Business and Economic Statistics Section, American Statistical Association, 98-104.

Pereira, R.M. (2014), Okun's law, asymmetries and regional spillovers: Evidence from Virginia metropolitan statistical areas and the District of Columbia, Annals of Regional Science, 52 (2), 583-595.

Ramos, R., Clar, M. and Suriñach, J. (2000) Comparación de la capacidad predictiva de los modelos de coeficientes fijos frente a variables en los modelos econométricos regionales: un análisis para Cataluña, Estudios de Economía Aplicada, 15, 125-162.

Rothman, P. (1998), Forecasting Asymmetric Unemployment Rates, Review of Economics and Statistics 80, 164-168.

Shively, T. and Kohn, R. (1997) A bayesian approach to model selection in stochastic coefficient regression models and structural time series models, Journal of Econometrics, 76, 39-52.

Villaverde, J., Maza, A. (2007), Okun's law in the Spanish regions, Economics Bulletin, 18 (5).

Villaverde, J. and Maza, A. (2009), The robustness of Okun's law in Spain, 1980–2004: Regional evidence, Journal of Policy Modelling, 31 (2), 289-297.




DOI: https://doi.org/10.17811/ebl.3.4.2014.247-262

Refbacks

  • There are currently no refbacks.


ISSN: 2254-4380