Forecasting Unemployment in Real Time during the Great Recession: An Elusive Task

Abstract

With the unemployment rate becoming a prominent factor in monetary policy decisions in recent years, forecasting the path of the rate in the near term has taken on a new urgency. How well do our current methods do in this task? We look at the performance of various publicly available forecasts, along with some econometric models, and evaluate their success at forecasting the unemployment rate in real time around the Great Recession. Unfortunately, the forecasting approaches we analyze performed very poorly until the beginning of the recovery. We discuss some possible reasons for this poor forecast performance.