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How reliable are recession prediction models?

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  • Andrew J. Filardo
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    Abstract

    The U.S. economy continues to advance briskly, defying forecasts of more moderate growth. Beginning in March 1991, the current expansion has become the longest peacetime expansion on record and is less than a year away from becoming the longest in U.S. history. To the surprise of some observers, economic growth has been particularly robust late in the expansion. In fact, over the last three years growth has averaged 4 percent annually, and indicators of growth for the first half of 1999 show no signs of significant slowing.> Despite these positive signs, few analysts believe the expansion can go on forever. As the expansion continues to age, economists will increasingly be called on to predict the next recession. Recession prediction models may help them gauge the likelihood of imminent recession.> Filardo examines the reliability of five popular recession prediction models. He concludes that these models have demonstrated some ability in the past to predict recessions. When judiciously interpreted, the models can help resolve uncertainty about the possibility of future recession.

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    File URL: http://www.kansascityfed.org/publicat/econrev/PDF/2q99fila.pdf
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    Bibliographic Info

    Article provided by Federal Reserve Bank of Kansas City in its journal Economic Review.

    Volume (Year): (1999)
    Issue (Month): Q II ()
    Pages: 35-55

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    Handle: RePEc:fip:fedker:y:1999:i:qii:p:35-55:n:v.84no.2

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    Related research

    Keywords: Recessions ; Forecasting;

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    Cited by:
    1. Österholm, Pär, 2012. "The limited usefulness of macroeconomic Bayesian VARs when estimating the probability of a US recession," Journal of Macroeconomics, Elsevier, vol. 34(1), pages 76-86.
    2. Mili, Mehdi & Sahut, Jean-Michel & Teulon, Frédéric, 2012. "Non linear and asymmetric linkages between real growth in the Euro area and global financial market conditions: New evidence," Economic Modelling, Elsevier, vol. 29(3), pages 734-741.
    3. Seip, Knut Lehre & McNown, Robert, 2007. "The timing and accuracy of leading and lagging business cycle indicators: A new approach," International Journal of Forecasting, Elsevier, vol. 23(2), pages 277-287.
    4. Maximo Camacho & Gabriel Perez-Quiros, 2000. "This Is What The Leading Indicators Lead," Computing in Economics and Finance 2000 132, Society for Computational Economics.
    5. Marco Del Negro, 2001. "Turn, turn, turn: Predicting turning points in economic activity," Economic Review, Federal Reserve Bank of Atlanta, issue Q2, pages 1-12.
    6. Qi, Min, 2001. "Predicting US recessions with leading indicators via neural network models," International Journal of Forecasting, Elsevier, vol. 17(3), pages 383-401.
    7. Ahrens, R., 2002. "Predicting recessions with interest rate spreads: a multicountry regime-switching analysis," Journal of International Money and Finance, Elsevier, vol. 21(4), pages 519-537, August.
    8. McNown, Robert & Seip, Knut Lehre, 2011. "Periods and structural breaks in US economic history 1959-2007," Journal of Policy Modeling, Elsevier, vol. 33(2), pages 169-182, March.
    9. Khurshid Kiani, 2011. "Fluctuations in Economic and Activity and Stabilization Policies in the CIS," Computational Economics, Society for Computational Economics, vol. 37(2), pages 193-220, February.

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