A Cross-Country Analysis of Unemployment and Bonds with Long-Memory Relations

We analyze the relationship between unemployment rate changes and government bond yields during and after the most recent financial crisis across nine industrialized countries. The study is conducted on a weekly basis and we therefore nowcast unemployment data, which are only available once a month, on a weekly frequency using Google search query data. In order to account for the time series' long-memory components during the first-stage nowcasting and the second-stage modeling, we draw on Corsi's (2009, JEF) heterogeneous autoregressive time series model. In particular, we adapt this idea to a setting of mixed-frequency nowcasting. Our results indicate that Google searches greatly increase the nowcasting accuracy of unemployment rate changes. The impact of an idiosyncratic rise in unemployment on bond yields turns out to be positive for European countries while it is negative for the United States and Australia. The speed of the response also varies. Not unexpectedly, bond yields do not have an impact on unemployment. Our findings have interesting implications for the way shocks are absorbed in economic systems that differ, in particular, with respect to the central bank's core tasks.