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Structural Breaks and Non-Linearities for Predicting the Probability of US Recessions using the Spread

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  • Galv“o, Ana Beatriz C.

    (European University Institute)

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    Abstract

    This paper proposes a structural break threshold model (SBT) to the dynamic relationship between US output growth and the spread between long- and short-term interest rates. This model is able to account for non-linearities, parameter changes and the reduction of the variability of output growth. The SBT model gives better in-sample predictions of the probability of US recessions during 1955-1999 than models with only non-linearity or structural breaks. The presence of a structural break affects the timing and the size of predictions of the probability of recession for 2001.

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    File URL: http://repec.org/res2002/Galvao.pdf
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    Bibliographic Info

    Paper provided by Royal Economic Society in its series Royal Economic Society Annual Conference 2002 with number 78.

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    Date of creation: 29 Aug 2002
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    Handle: RePEc:ecj:ac2002:78

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