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Predicting Recessions

Author

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  • Iyer, Rajkamal

Abstract

This paper predicts recessions using the dispersion of deposit rates offered by banks on insured deposits. An increase in the dispersion of deposit rates can accurately predict re- cessions over long time horizons at the county, state, and national levels. We find that the growth of deposits, particularly uninsured deposits of riskier banks, slows down at the on- set of a downturn, regardless of whether the downturn was preceded by a credit boom. In turn, riskier banks increase their deposit rates to attract more funding to support their bal- ance sheet. The resulting increase in the dispersion of deposit rates predicts an impending economic downturn.

Suggested Citation

  • Iyer, Rajkamal, 2022. "Predicting Recessions," CEPR Discussion Papers 17633, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:17633
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    More about this item

    Keywords

    Recessions; Banks; Deposit rates;
    All these keywords.

    JEL classification:

    • E00 - Macroeconomics and Monetary Economics - - General - - - General
    • G20 - Financial Economics - - Financial Institutions and Services - - - General

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