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Predicting Severe Simultaneous Recessions Using Yield Spreads as Leading Indicators

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  • Charlotte Christiansen

    ()
    (Aarhus University, Business and Social Sciences and CREATES)

Abstract

Severe simultaneous recessions are de?ned 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.

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File URL: ftp://ftp.econ.au.dk/creates/rp/11/rp11_20.pdf
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Bibliographic Info

Paper provided by School of Economics and Management, University of Aarhus in its series CREATES Research Papers with number 2011-20.

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Length: 25
Date of creation: 31 May 2011
Date of revision:
Handle: RePEc:aah:create:2011-20

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Web page: http://www.econ.au.dk/afn/

Related research

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

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Cited by:
  1. Candelon, Bertrand & Metiu, Norbert & Straetmans, Stefan, 2013. "Disentangling economic recessions and depressions," Discussion Papers 43/2013, Deutsche Bundesbank, Research Centre.
  2. John C Bluedorn & Jörg Decressin & Marco Terrones, 2013. "Do Asset Price Drops Foreshadow Recessions?," IMF Working Papers 13/203, International Monetary Fund.

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