Multivariate STAR Unemployment Rate Forecasts

In this paper we use smooth transition vector error-correction models (STVECMs) in a simulated out-of-sample forecasting experiment for the unemployment rates of the four non-Euro G-7 countries, the U.S., U.K., Canada, and Japan. In the forecasting analysis, pooled forecasts constructed by taking the median value across the point forecasts generated by the linear VECM and the STVECMs generally are the topranked forecasts. For the U.S., Canada, and Japan, the STVECM forecasts appear to perform better than the linear VECM benchmark more so during business cycle expansions, while the opposite is the case for the U.K.