Sunday, December 10, 2017

Another unemployment rate forecast comparison

Paul Romer tweeted a graph of an unemployment rate projection. I'm not sure where it came from — my guess is the World Bank — but I thought I'd add it to the forecast from the dynamic information equilibrium model last updated here. Already it (thick dark blue line) seems to be fairly wrong (no confidence limits were given; the dynamic equilibrium model uses 90%):

Of course the dynamic information equilibrium forecast is conditional on the lack of shocks (which can be identified via the algorithm discussed here). The forecast Romer tweeted could be the result of a very broad but small amplitude shock to the dynamic equilibrium model, but such a shock would be unlike any other adverse shock in the US data since the Great Depression.

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