The term spread as a cyclical indicator: a forecasting evaluation
AbstractThis paper questions whether the spread between long and short-term interests rates is a good cyclical indicator of US economic activity. Probit regressions using the term spread as an independent variable are used to forecast the probability of a recession and the forecasts are evaluated. Using alternative probability thresholds, the turns that were predicted, their timing and the number of recessions that were not forecast were identified and the tradeoff between the number of missed and false predictions is examined. A quantitative measure of the forecast errors is also used to compare the accuracy of probit forecasts with those of two naive standards. Finally, the term spread is evaluated purely as an indicator. It is concluded that this series, by itself, is not a reliable predictor of economic activity.
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Bibliographic InfoArticle provided by Taylor and Francis Journals in its journal Applied Financial Economics.
Volume (Year): 11 (2001)
Issue (Month): 4 ()
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Web page: http://www.tandf.co.uk/journals/routledge/09603107.html
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- Alexandra Krystalogianni & George Matysiak & Sotiris Tsolacos, 2004. "Forecasting UK commercial real estate cycle phases with leading indicators: a probit approach," Applied Economics, Taylor and Francis Journals, vol. 36(20), pages 2347-2356.
- Alexandra Krystaloyianni & George Matysiak & Sotiris Tsolacos, 2004. "Forecasting UK Real Estate Cycle Phases With Leading Indicators: A Probit Approach," Real Estate & Planning Working Papers rep-wp2004-15, Henley Business School, Reading University.
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