Financial and Economic Forecasting

Topics: Granger causality, Regression analysis, Econometrics Pages: 24 (3798 words) Published: December 10, 2012
Financial and Economic


The Civilian Unemployment Rate

By: Doug Hanig

Due: 5/15/12

Doug Hanig

Professor Hecht



Part 1

A. Civilian Unemployment Rate (FRED Database)

Government Agency: US Department of Labor: Bureau of Labor statistics

B. The government would be interested in this forecast for many reasons. By forecasting the civilian unemployment rate, the government can have an idea of how stable the economy will be in the upcoming years.




Correlation Coefficient: -.068522

These two variables are slight negatively correlated meaning as the Unemployment Rate decreases, Real GDP will increase by .068522%.

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Part 2

a. So What? Who Cares?

In the economy today, the unemployment rate is one of the most viewed at statistics in judging the state of the economy. We all figure that having more people with jobs will result in a stable and successful economy. The unemployment rate is defined as the percentage of the total labor force that is unemployed but actively seeking employment and willing to work.  Source:

The article above tests the relationship between unemployment and RGDP. The author specification was that the two variables would be negatively correlated. This would mean as Unemployment decreases, Real GDP would increase. GDP is another economic indicator of the economy and the study found that the two have an inverse relationship with each other.

This article tested the relationship between unemployment and the S&P 500 stock index. The author’s specification was that there would not be a strong correlation between the two variables. He tested unemployment against many different indicators of the S&P 500, such as the log value. In this article 10 year intervals were used to test the two variables. The main conclusion from this article was that the unemployment rate was a lagging indicator of the economy.


1. D(RUNC)= f(%RGDP, %CPIGAS, %SP500)

RUNC= Civilian Unemployment Rate (1957q1-2011q4)

%RGDP= Percent change in Real GDP in US (1957q1-2011q4)

%CPI = Percent change in Consumer Price Index of All Gasoline in the US (1957q1-2011q4)

%SP500= Percent chance in the S&P 500 Stock Index (1957q1-2011q4)


%RGDP (-) - As Unemployment Rate decreases; the %change in RGDP will increase.

%CPIGAS (+) - As Unemployment Rate decreases, the %change in CPIGAS will decrease

%SP500 (-) – As Unemployment Rate decreases, the %chance in the SP500 will increase


| Mean | 7282.892 |
| Median | 6585.850 |
| Maximum | 13429.00 |
| Minimum | 2519.000 |
| Std. Dev. | 3415.758 |
| Skewness | 0.389595 |
| Kurtosis | 1.857402 |
| | |
| Jarque-Bera | 17.53280 |
| Probability | 0.000156 |
| | |
| Sum | 1602236. |
| Sum Sq. Dev. | 2.56E+09 |
| | |
| Observations | 220 |


| Mean | 91.09057 |
| Median | 91.38350 |...
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