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Working Paper

Unemployment in the Time of COVID-19: A Flow-Based Approach to Real-time Unemployment Projections

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This paper presents a flow-based methodology for real-time unemployment rate projections and shows that this approach performed considerably better at the onset of the COVID-19 recession in spring 2020 in predicting the peak unemployment rate as well as its rapid decline over the year. It presents an alternative scenario analysis for 2021 based on this methodology and argues that the unemployment rate is likely to end slightly below 5 percent by the end of 2021. The predictive power of the methodology comes from its combined use of real-time data with the flow approach.
Topics
Labor economics
Econometrics modeling and forecasting
11.08.2021ISSN 2573-7953 WP 21-25DOI 10.26509/frbc-wp-202125
Keywords unemployment rate, labor market flows, trend, Federal Reserve District
JEL Classification Codes E32, E24, D21, J6, R1

Working Papers of the Federal Reserve Bank of Cleveland are preliminary materials circulated to stimulate discussion and critical comment on research in progress. They may not have been subject to the formal editorial review accorded official Federal Reserve Bank of Cleveland publications. The views expressed in this paper are those of the authors and do not represent the views of the Federal Reserve Bank of Cleveland or the Federal Reserve System.

Suggested Citation

Şahin, Ayşegül, Murat Tasci, and Jin Yan. 2021. “Unemployment in the Time of COVID-19: A Flow-Based Approach to Real-time Unemployment Projections.” Federal Reserve Bank of Cleveland, Working Paper No. 21-25. https://doi.org/10.26509/frbc-wp-202125