Abstract
In this paper we evaluate the forecasting performance of employment expectations for employment growth in 15 European states. Our data cover the period from the first quarter 1998 to the fourth quarter 2014. With in-sample analyses and pseudo out-of-sample exercises, we find that for most of the European states considered, the survey-based indicator model outperforms common benchmark models. It is therefore a powerful tool for generating more accurate employment forecasts. We observe the best results for one quarter ahead predictions that are primarily the aim of the survey question. However, employment expectations also work well for longer forecast horizons in some countries.
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Notes
The data are periodically updated and available at http://www.cesifo-group.de/ifoHome/facts/Time-series-and-Diagrams/Zeitreihen/Reihen-Beschaeftigungsbarometer.html.
A description and new press releases can be found at http://www.kof.ethz.ch/en/surveys.
The aim of the European Commission is to keep the sample representative for each month. To ensure this, sample updates are necessary on occasion due to, e.g., start-ups or bankruptcies. However, the samples for the business survey are very stable in each state. Additional details on the sample composition can be found in European Commission (2007).
The code of the corresponding time series is: namq_10_a10_e. All the data can be downloaded free of charge under http://epp.eurostat.ec.europa.eu/portal/page/portal/eurostat/home. The data used in this paper were downloaded on May 15, 2015. To keep our analysis as up-to-date as possible, we use employment figures based on the new European System of National and Regional Accounts 2010 (ESA 2010).
Advanced services comprise the sectors information and communication, financial services, real estate, scientific and administrative services, public administration as well as arts and other service activities. For more details on the specific sectors, see Eurostat (2008).
Table 4 in the Appendix shows the typical descriptive results for all considered series.
The same holds for the series EEXP_tm.
The results of the unit root tests for MEMP and EEXP_tm can be found in Table 5 in the Appendix. For these two variables, the stationarity tests yield relatively similar results as for EMP and EEXP_av
So it is by no means a test on causality between two variables or on the exogeneity of a series.
Whenever breaks in the time series are present, the rolling window approach is preferable. An expanding window is suitable when there are no breaks in the series or the whole cyclicality of the series should be captured. The recursive approach then leads to more precise estimates of the parameters (Weber and Zika 2013).
Turning to EEXP_tm, the third month of each quarter as representative serves as a leading indicator as well. Especially for Italy, the third month has explanatory power for EMP as well as for MEMP. Detailed in-sample results for EEXP_tm can be found in Table 6 in the Appendix.
The results from the expanding window are presented in Table 7 in the Appendix.
The ISM is defined as \(y_{t+h} = {\overline{y}}\), representing the sample average of the estimation window. The Random Walk prediction is simply the last known value of the target variable \(y_{t+h} = y_{t-1}\).
One would argue that adding an indicator and therefore getting a better in-sample fit for the data has to result in a better out-of-sample performance. This may not be the case (see Chatfield 1995). Overfitting the model or parameter instabilities (see Rossi and Sekhposyan 2011) are some explanations why in-sample and out-of-sample performance may differ.
The results for longer forecast horizons are available upon request.
In order to keep the number of results clear and to save space, we only present the Fluctuation test results for EMP and EEXP_av. All the other results and pictures are available upon request.
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Acknowledgments
Our special thanks goes to two anonymous referees, Alfred Garloff and Marcel Thum for their careful reading of our manuscript. We are grateful to Wolfgang Nagl, Michael Weber and seminar participants at the Technische Universität Dresden for helpful comments and suggestions; and to Lisa Giani Contini for editing this text. We also thank the participants at the meeting of the Regional Research Network from the Institute for Employment Research in November 2013. Comments from the 1st CGDE Doctoral Workshop are also gratefully acknowledged.
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Lehmann, R., Weyh, A. Forecasting Employment in Europe: Are Survey Results Helpful?. J Bus Cycle Res 12, 81–117 (2016). https://doi.org/10.1007/s41549-016-0002-5
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DOI: https://doi.org/10.1007/s41549-016-0002-5