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Predicting severe simultaneous recessions using yield spreads as leading indicators

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  • Christiansen, Charlotte

Abstract

Severe simultaneous recessions are defined to occur when at least half of the countries under investigation (Australia, Canada, Germany, Japan, United Kingdom, and United States) are in recession simultaneously. I pose two new research questions that extend upon stylized facts for US recessions. One, are the occurrences of simultaneous recessions predictable? Two, does the yield spread predict future occurrences of simultaneous recessions? I use the indicator for severe simultaneous recessions as the explained variable in probit models. The lagged yield spread is an important explanatory variable, where decreasing yield spreads are a leading indicator for severe simultaneous recessions. Both US and German yield spreads act as leading indicator for severe simultaneous recessions.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of International Money and Finance.

Volume (Year): 32 (2013)
Issue (Month): C ()
Pages: 1032-1043

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Handle: RePEc:eee:jimfin:v:32:y:2013:i:c:p:1032-1043

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Web page: http://www.elsevier.com/locate/inca/30443

Related research

Keywords: Business cycle; Recessions; Yield spread; Probit model;

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Cited by:
  1. John C Bluedorn & Jörg Decressin & Marco Terrones, 2013. "Do Asset Price Drops Foreshadow Recessions?," IMF Working Papers 13/203, International Monetary Fund.
  2. Bertrand Candelon & Norbert Metiu & Stefan Straetmans, 2014. "Disentangling economic recessions and depressions," Working Papers 2014-328, Department of Research, Ipag Business School.

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