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Works like a Sahm: Recession indicators and the Sahm rule

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  • Ash, Thomas
  • Nickelsburg, Jerry

Abstract

We analyse the use of the Sahm rule as a recession predictor/indicator. We use two approaches: (1) an empirical analysis of historic recession episodes; and (2) stochastic simulations in a VAR framework. We find that in both the Sahm rule is a poor predictor of future recessions. The VAR exercise suggests this is because of its focus on the unemployment rate, which misses non-labour market shocks. This analysis suggests the Sahm rule should be restricted to the purpose that its creator intended.

Suggested Citation

  • Ash, Thomas & Nickelsburg, Jerry, 2024. "Works like a Sahm: Recession indicators and the Sahm rule," Economics Letters, Elsevier, vol. 242(C).
    • Handle: RePEc:eee:ecolet:v:242:y:2024:i:c:s0165176524003628
    DOI: 10.1016/j.econlet.2024.111878
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    References listed on IDEAS

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    1. Silvia Miranda-Agrippino & Giovanni Ricco, 2021. "The Transmission of Monetary Policy Shocks," American Economic Journal: Macroeconomics, American Economic Association, vol. 13(3), pages 74-107, July.
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    6. David Kelley, 2019. "Which Leading Indicators Have Done Better at Signaling Past Recessions?," Chicago Fed Letter, Federal Reserve Bank of Chicago.
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    More about this item

    Keywords

    Recessions; Sahm rule; US economy;
    All these keywords.

    JEL classification:

    • E00 - Macroeconomics and Monetary Economics - - General - - - General
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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