We introduce a new time series model that can capture the properties of data as is typically exemplified by monthly US unemployment data. These data show the familiar nonlinear features, with steeper increases in unem- ployment during economic downswings than the decreases during economic prosperity. At the same time, the levels of unemployment in each of the two states do not seem fixed, nor are the transition periods abrupt. Finally, our model should generate out-of-sample forecasts that mimic the in-sample properties. We demonstrate that our new and flexible model covers all those features, and our illustration to monthly US unemployment data shows its merits, both in and out of sample.

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Econometric Institute Research Papers
Erasmus School of Economics

de Bruijn, B., & Franses, P. H. (2015). Stochastic levels and duration dependence in US unemployment (No. EI2015-20). Econometric Institute Research Papers. Retrieved from http://hdl.handle.net/1765/78710