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Predicting recessions with a composite real-time dynamic probit model

Listed author(s):
  • Proaño, Christian R.
  • Theobald, Thomas

In this paper we propose a composite indicator for real-time recession forecasting based on alternative dynamic probit models. For this purpose, we use a large set of monthly macroeconomic and financial leading indicators from the German and US economies. Alternative dynamic probit regressions are specified through automated general-to-specific and specific-to-general lag selection procedures on the basis of slightly different initial sets. The resulting recession probability forecasts are then combined in order to decrease the volatility of the forecast errors and increase their forecasting accuracy. This procedure features not only good in-sample forecast statistics, but also good out-of-sample performances, as is illustrated using a real-time evaluation exercise.

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File URL: http://www.sciencedirect.com/science/article/pii/S0169207014000508
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Article provided by Elsevier in its journal International Journal of Forecasting.

Volume (Year): 30 (2014)
Issue (Month): 4 ()
Pages: 898-917

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Handle: RePEc:eee:intfor:v:30:y:2014:i:4:p:898-917
DOI: 10.1016/j.ijforecast.2014.02.007
Contact details of provider: Web page: http://www.elsevier.com/locate/ijforecast

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