Predicting severe simultaneous recessions using yield spreads as leading indicators
Severe simultaneous recessions are defined to occur when at least half of the countries under investigation (Australia, Canada, Germany, Japan, United Kingdom, and United States) are in recession simultaneously. I pose two new research questions that extend upon stylized facts for US recessions. One, are the occurrences of simultaneous recessions predictable? Two, does the yield spread predict future occurrences of simultaneous recessions? I use the indicator for severe simultaneous recessions as the explained variable in probit models. The lagged yield spread is an important explanatory variable, where decreasing yield spreads are a leading indicator for severe simultaneous recessions. Both US and German yield spreads act as leading indicator for severe simultaneous recessions.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 32 (2013)
Issue (Month): C ()
|Contact details of provider:|| Web page: http://www.elsevier.com/locate/inca/30443|
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Bernard, Henri J & Gerlach, Stefan, 1998.
"Does the Term Structure Predict Recessions? The International Evidence,"
CEPR Discussion Papers
1892, C.E.P.R. Discussion Papers.
- Bernard, Henri & Gerlach, Stefan, 1998. "Does the Term Structure Predict Recessions? The International Evidence," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 3(3), pages 195-215, July.
- Henri Bernard & Stefan Gerlach, 1996. "Does the term structure predict recessions? The international evidence," BIS Working Papers 37, Bank for International Settlements.
- Arturo Estrella, 2005. "Why Does the Yield Curve Predict Output and Inflation?," Economic Journal, Royal Economic Society, vol. 115(505), pages 722-744, 07.
- David C. Wheelock & Mark E. Wohar, 2009. "Can the term spread predict output growth and recessions? a survey of the literature," Review, Federal Reserve Bank of St. Louis, issue Sep, pages 419-440.
- M Sensier & M Artis & C R Birchenhall & D R Osborn, 2002.
"Domestic and International Influences on Business Cycle Regimes in Europe,"
The School of Economics Discussion Paper Series
0202, Economics, The University of Manchester.
- Sensier, Marianne & Artis, Michael & Osborn, Denise R. & Birchenhall, Chris, 2004. "Domestic and international influences on business cycle regimes in Europe," International Journal of Forecasting, Elsevier, vol. 20(2), pages 343-357.
- M Sensier & M Artis & C R Birchenhall & D R Osborn, 2002. "Domestic and International Influences on Business Cycle Regimes in Europe," Centre for Growth and Business Cycle Research Discussion Paper Series 11, Economics, The Univeristy of Manchester.
- Fabio Moneta, 2005. "Does the Yield Spread Predict Recessions in the Euro Area?," International Finance, Wiley Blackwell, vol. 8(2), pages 263-301, 08.
- Plosser, Charles I. & Geert Rouwenhorst, K., 1994. "International term structures and real economic growth," Journal of Monetary Economics, Elsevier, vol. 33(1), pages 133-155, February.
- James H. Stock & Mark W. Watson, 1989.
"New Indexes of Coincident and Leading Economic Indicators,"
in: NBER Macroeconomics Annual 1989, Volume 4, pages 351-409
National Bureau of Economic Research, Inc.
- Stock, J.H. & Watson, M.W., 1989. "New Indexes Of Coincident And Leading Economic Indicators," Papers 178d, Harvard - J.F. Kennedy School of Government.
- Schrimpf, Andreas & Wang, Qingwei, 2010. "A reappraisal of the leading indicator properties of the yield curve under structural instability," International Journal of Forecasting, Elsevier, vol. 26(4), pages 836-857, October.
- Arturo Estrella & Frederic S. Mishkin, 1996.
"Predicting U.S. recessions: financial variables as leading indicators,"
9609, Federal Reserve Bank of New York.
- Arturo Estrella & Frederic S. Mishkin, 1998. "Predicting U.S. Recessions: Financial Variables As Leading Indicators," The Review of Economics and Statistics, MIT Press, vol. 80(1), pages 45-61, February.
- Arturo Estrella & Frederic S. Mishkin, 1995. "Predicting U.S. Recessions: Financial Variables as Leading Indicators," NBER Working Papers 5379, National Bureau of Economic Research, Inc.
- Heikki Kauppi & Pentti Saikkonen, 2008. "Predicting U.S. Recessions with Dynamic Binary Response Models," The Review of Economics and Statistics, MIT Press, vol. 90(4), pages 777-791, November.
- Michael J. Dueker, 1997. "Strengthening the case for the yield curve as a predictor of U.S. recessions," Review, Federal Reserve Bank of St. Louis, issue Mar, pages 41-51.
- James H. Stock & Mark W. Watson, 2001.
"Forecasting Output and Inflation: The Role of Asset Prices,"
NBER Working Papers
8180, National Bureau of Economic Research, Inc.
- James H. Stock & Mark W. Watson, 2001. "Forecasting output and inflation: the role of asset prices," Proceedings, Federal Reserve Bank of San Francisco, issue Mar.
- James H. Stock & Mark W.Watson, 2003. "Forecasting Output and Inflation: The Role of Asset Prices," Journal of Economic Literature, American Economic Association, vol. 41(3), pages 788-829, September.
- Hamilton, James D & Kim, Dong Heon, 2002.
"A Reexamination of the Predictability of Economic Activity Using the Yield Spread,"
Journal of Money, Credit and Banking,
Blackwell Publishing, vol. 34(2), pages 340-60, May.
- James D. Hamilton & Dong Heon Kim, 2000. "A Re-examination of the Predictability of Economic Activity Using the Yield Spread," NBER Working Papers 7954, National Bureau of Economic Research, Inc.
- Hamilton, James Douglas & Kim, Dong Heon, 2000. "A Re-examination of the Predictability of Economic Activity Using the Yield Spread," University of California at San Diego, Economics Working Paper Series qt69v8p1m9, Department of Economics, UC San Diego.
- Ahrens, R., 2002. "Predicting recessions with interest rate spreads: a multicountry regime-switching analysis," Journal of International Money and Finance, Elsevier, vol. 21(4), pages 519-537, August.
- Glenn D. Rudebusch & John C. Williams, 2007.
"Forecasting recessions: the puzzle of the enduring power of the yield curve,"
Working Paper Series
2007-16, Federal Reserve Bank of San Francisco.
- Rudebusch, Glenn D. & Williams, John C., 2009. "Forecasting Recessions: The Puzzle of the Enduring Power of the Yield Curve," Journal of Business & Economic Statistics, American Statistical Association, vol. 27(4), pages 492-503.
- Estrella, Arturo & Hardouvelis, Gikas A, 1991.
" The Term Structure as a Predictor of Real Economic Activity,"
Journal of Finance,
American Finance Association, vol. 46(2), pages 555-76, June.
- Arturo Estrella & Gikas A. Hardouvelis, 1989. "The term structure as a predictor of real economic activity," Research Paper 8907, Federal Reserve Bank of New York.
- Harvey, Campbell R., 1988. "The real term structure and consumption growth," Journal of Financial Economics, Elsevier, vol. 22(2), pages 305-333, December.
- Menzie Chinn & Kavan Kucko, 2015.
"The Predictive Power of the Yield Curve Across Countries and Time,"
Wiley Blackwell, vol. 18(2), pages 129-156, 06.
- Menzie D. Chinn & Kavan J. Kucko, 2010. "The Predictive Power of the Yield Curve across Countries and Time," NBER Working Papers 16398, National Bureau of Economic Research, Inc.
- Estrella, Arturo, 1998.
"A New Measure of Fit for Equations with Dichotomous Dependent Variables,"
Journal of Business & Economic Statistics,
American Statistical Association, vol. 16(2), pages 198-205, April.
- Arturo Estrella, 1997. "A new measure of fit for equations with dichotomous dependent variables," Research Paper 9716, Federal Reserve Bank of New York.
- Henri Nyberg, 2010. "Dynamic probit models and financial variables in recession forecasting," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 29(1-2), pages 215-230.
- Artis, Michael J & Kontolemis, Zenon G & Osborn, Denise R, 1997. "Business Cycles for G7 and European Countries," The Journal of Business, University of Chicago Press, vol. 70(2), pages 249-79, April.
- Jonathan H. Wright, 2006. "The yield curve and predicting recessions," Finance and Economics Discussion Series 2006-07, Board of Governors of the Federal Reserve System (U.S.).
When requesting a correction, please mention this item's handle: RePEc:eee:jimfin:v:32:y:2013:i:c:p:1032-1043. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Shamier, Wendy)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.