Neural networks

In the past 10 years, neural networks have emerged as a powerful tool for predictive modeling with "big data." This chapter discusses the potential role of neural networks as applied to economic forecasting. It begins with a brief discussion of the history of neural networks, their use in economics, and their value as universal function approximators. It proceeds to introduce the elemental structures of neural networks, taking the classic feed forward, fully connected type of neural network as its point of reference. A broad set of design decisions are discussed including regularization, activation functions, and model architecture. Following this, two additional types of neural network model are discussed: recurrent neural networks and encoder-decoder models. The chapter concludes with an empirical application of all three models to the task of forecasting unemployment.