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Forecasting a One Quarter Decline in U.S. Real GDP with Probit Models

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  • Carl Gaudreault
  • Robert Lamy

Abstract

This paper examines the capacity of a variety of macroeconomic indicators to forecast a one-quarter decline in U.S. real GDP in a given quarter using a standard probit model. We find the U.S Conference Board index of coincident indicators of U.S. economic activity to be the best single coincident predictor of a one-quarter decline in U.S. real GDP. The index has much more information content than employment, industrial production, and the NAPM overall index. The predictive power of the index of coincident indicators is enhanced when used in combination with the change in the U.S. Fed funds rate lagged two quarters. One- and two-quarters ahead, the best single leading predictors are Finance Canada’s index of leading indicators of U.S. economic activity and the U.S. yield curve. The change in the U.S. real Fed funds rate and the growth in U.S. real stock prices add the most to the predictive capacity of the U.S. leading index and the U.S. yield curve. The paper also assesses the reliability of four probit models in forecasting a one-quarter decline in U.S. real GDP for forecast horizons from zero to three quarters. In-sample and out-of-sample, the most reliable model has a forecast horizon of zero quarters. It includes growth in the U.S. Conference Board index of coincident indicators of U.S. economic activity in the current quarter and the change in the U.S. Fed funds rate lagged two quarters as the information set. In-sample, it predicted 68 per cent of the nineteen quarterly declines in U.S. real GDP since the second quarter of 1963. Out-of-sample, the success rate is 80 per cent since the first quarter of 1980. Out-of-sample simulations show that using only one or two months of data for the coincident index for the current quarter has no impact on the reliability of the model in forecasting one-quarter declines in real GDP. Ce papier étudie l’aptitude de plusieurs variables macro-économiques à prévoir une diminution du PIB réel des États-Unis dans un trimestre donné en utilisant des modèles probit standards. Nous trouvons l’indice coïncident de l’activité économique des États-Unis publié par le U.S Conference Board comme étant la meilleure variable coïncidente de prévision d’une diminution trimestrielle du PIB réel des États-Unis. Cet indice contient beaucoup plus d’information prédictive que l’emploi, la production industrielle ou l’indice NAPM agrégé. Le pouvoir prédictif de l’indice économique coïncident est amélioré lorsqu’il est utilisé conjointement avec le taux des fonds fédéraux retardé de deux trimestres. Avec un horizon de un et de deux trimestres, les meilleures variables de prévision sont respectivement l’indice économique avancé pour les États-Unis construit par le ministère des Finances, et la courbe de rendement américaine. Le taux réel des fonds fédéraux et la croissance du prix réel des actions sont respectivement les variables qui ajoutent le plus à l’aptitude prédictive de l’indice économique avancé et de la courbe de rendement. Le papier examine également la fiabilité de quatre modèles probit quant à la prévision d’une diminution du PIB réel américain sur un horizon de zéro à trois trimestres. En échantillon et hors échantillon, le modèle le plus fiable est celui avec zéro trimestre comme horizon de prévision, soit celui avec l’indice économique coïncident des États-Unis et le changement du taux des fonds fédéraux retardé de deux trimestres. En échantillon, il a su prévoir 68% des dix-neuf diminutions trimestrielles du PIB réel des États-Unis depuis le deuxième trimestre de 1963. Hors échantillon, le taux de succès s’élève à 80% depuis le premier trimestre de 1980. Les simulations hors échantillon montrent que le fait d’utiliser les données de seulement un ou deux mois de l’indice économique coïncident pour le trimestre courant n’a pas d’impact sur la fiabilité du modèle pour l’estimation de la probabilité d’une diminution trimestrielle du PIB réel américain.

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Paper provided by Department of Finance Canada in its series Working Papers-Department of Finance Canada with number 2002-05.

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Handle: RePEc:fca:wpfnca:2002-05

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