Evaluating nowcasts of bridge equations with advanced combination schemes for the Turkish unemployment rate

Abstract

The paper analyzes the point and density predictive performance of alternative nowcast combination schemes in the context of bridge equations for the Turkish unemployment rate. Furthermore, we also nowcast the unemployment rate by using dynamic factor models (DFMs). Our results indicate that most of the sophisticated forecast combination methods have better predictive accuracy than the simple forecast combinations, especially in higher forecast horizons, which constitutes a case for the nowcast combination puzzle. Furthermore, most of bridge equations with the advanced forecast combination schemes usually outperform DFMs which are assumed to be superior to the bridge equations. This latter result indicates that bridge equations augmented by advanced forecast combination schemes may be a viable alternative to the DFM. Finally, we show that real and labor variables play the most important role for nowcasting the Turkish unemployment rate, whereas financial variables and surveys do not seem to be beneficial. Overall, our results indicate that advanced combination schemes can increase the performance of nowcasting models.

Publication
In Economic Modelling
Baris Soybilgen
Baris Soybilgen
Assistant Professor in the Department of Management Information Systems

Economist with a strong focus in applied econometrics and data science.