CFP releases the working paper “Forecasting unemployment in Portugal: A labour market flows approach”, by Nuno Gonçalves and Domingos Seward.
This paper applies a labour market flows approach to forecasting the unemployment rate initially developed by Barnichon and Nekarda (2012) and subsequently extended by Barnichon and Garda (2016) to the Portuguese labour market.
First, it was implemented a simple two-state labour market forecasting model (employment and unemployment) and then it was extended to a three-state (employment, unemployment and inactivity) labour market forecasting model which incorporates movements in and out of the labour force.
The authors tested the forecasting accuracy of each of these models and find that the two-state flow-based forecasting model performs slightly better than the other tested models. They concluded also that worker flow data is a valuable input for forecasting the unemployment in Portugal.