The Current Depth-of-Recession and Unemployment-Rate Forecasts - Abstract

The Current Depth-of-Recession and Unemployment-Rate Forecasts

Randall E. Parker and Philip Rothman
Department of Economics
East Carolina University


Pages 151-158

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.

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