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Studies in Nonlinear Dynamics & Econometrics

Ed. by Mizrach, Bruce


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1558-3708
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Volume 22, Issue 1

Issues

Evaluating the impact of the labor market conditions index on labor market forecasts

Laura Connolly
  • The University of Alabama, Department of Economics, Finance, and Legal Studies, Tuscaloosa, AL 35487, United States of America
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/ Alice Sheehan
  • Corresponding author
  • The University of Alabama, Department of Economics, Finance, and Legal Studies, 200 Alston Hall, Box 870224 Tuscaloosa, AL 35487, United States of America
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Published Online: 2018-02-13 | DOI: https://doi.org/10.1515/snde-2016-0102

Abstract

This paper examines the usefulness of the labor market conditions index (LMCI) in forecasting key labor market variables, particularly unemployment rates. Using a number of models, we compare out-of-sample forecasts of the unemployment rate with the LMCI to those without the LMCI. We also estimate models of the disaggregated unemployment rates by gender, race, and race by gender, with and without the LMCI, to identify disparities in the predictive power of the LMCI for different subgroups. Last, to determine how the LMCI performs in the presence of labor market shocks, we compare the forecasting performance of the LMCI during recessionary periods and expansionary periods. Our results confirm the potential usefulness of the LMCI as a parsimonious forecasting tool; we find that the LMCI generally improves unemployment forecasts. But, disparities exist in the predictive power of the index across subpopulations and the index forecasts slightly better during recessionary periods than expansionary periods.

This article offers supplementary material which is provided at the end of the article.

Keywords: forecasting; labor market conditions index; unemployment rate

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Published Online: 2018-02-13


Citation Information: Studies in Nonlinear Dynamics & Econometrics, Volume 22, Issue 1, 20160102, ISSN (Online) 1558-3708, DOI: https://doi.org/10.1515/snde-2016-0102.

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