Forecasting the end of the global recession: did we miss the early signs?
AbstractThis paper looks at the term-structure literature to identify early signs predicting recessionary patterns in the U.S. and other developed economies. Based on the National Bureau of Economic Research (NBER) and Economic Cycle Research Institute (ECRI) recession dates, we define the probability of recession as a function of the traditional yield spread, plus a forward-looking measure of growth expectations, namely the output gap growth spread. For other countries, we extend the model and make it additionally dependent on the probability of recession in the U.S. Our results indicate that most of the a-posteriori official recession dates could have been forecast as early as April 2009, when the first green shoots of recovery appeared in the U.S. data. Overall, the term-structure versions we apply allow us to signal recessions earlier and more accurately than traditional term-structure models and most professional forecasters.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoArticle provided by Federal Reserve Bank of Dallas in its journal Staff Papers.
Volume (Year): (2011)
Issue (Month): Apr ()
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Sharon Kozicki, 1997. "Predicting real growth and inflation with the yield spread," Economic Review, Federal Reserve Bank of Kansas City, issue Q IV, pages 39-57.
- Diebold, Francis X. & Rudebusch, Glenn D. & Borag[caron]an Aruoba, S., 2006.
"The macroeconomy and the yield curve: a dynamic latent factor approach,"
Journal of Econometrics,
Elsevier, vol. 131(1-2), pages 309-338.
- Francis X. Diebold & Glenn D. Rudebusch & S. Boragan Aruoba, 2004. "The Macroeconomy and the Yield Curve: A Dynamic Latent Factor Approach," NBER Working Papers 10616, National Bureau of Economic Research, Inc.
- Tom Doan, . "RATS programs to replicate Diebold,Rudebusch,Aruoba 2006 factor model," Statistical Software Components RTZ00047, Boston College Department of Economics.
- Arturo Estrella & Anthony P. Rodrigues & Sebastian Schich, 2000.
"How stable is the predictive power of the yield curve? evidence from Germany and the United States,"
113, Federal Reserve Bank of New York.
- Arturo Estrella & Anthony P. Rodrigues & Sebastian Schich, 2003. "How Stable is the Predictive Power of the Yield Curve? Evidence from Germany and the United States," The Review of Economics and Statistics, MIT Press, vol. 85(3), pages 629-644, August.
- Athanasios Orphanides & Simon van Norden, 2004.
"The reliability of inflation forecasts based on output gap estimates in real time,"
Finance and Economics Discussion Series
2004-68, Board of Governors of the Federal Reserve System (U.S.).
- Orphanides, Athanasios & van Norden, Simon, 2005. "The Reliability of Inflation Forecasts Based on Output Gap Estimates in Real Time," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 37(3), pages 583-601, June.
- Orphanides, Athanasios & van Norden, Simon, 2005. "The Reliability of Inflation Forecasts Based on Output Gap Estimates in Real Time," CEPR Discussion Papers 4830, C.E.P.R. Discussion Papers.
- Athanasios Orphanides & Simon van Norden, 2003. "The Reliability of Inflation Forecasts Based on Output Gap Estimates in Real Time," CIRANO Working Papers 2003s-01, CIRANO.
- Michael Dueker, 1997. "Strengthening the case for the yield curve as a predictor of U.S. recessions," Review, Federal Reserve Bank of St. Louis, issue Mar, pages 41-51.
- Evan F. Koenig & Kenneth M. Emery, 1991. "Misleading indicators? Using the composite leading indicators to predict cyclical turning points," Economic and Financial Policy Review, Federal Reserve Bank of Dallas, issue Jul, pages 1-14.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Delia Rodriguez).
If references are entirely missing, you can add them using this form.