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How reliable are recession prediction models?

  • Andrew J. Filardo

The U.S. economy continues to advance briskly, defying forecasts of more moderate growth. Beginning in March 1991, the current expansion has become the longest peacetime expansion on record and is less than a year away from becoming the longest in U.S. history. To the surprise of some observers, economic growth has been particularly robust late in the expansion. In fact, over the last three years growth has averaged 4 percent annually, and indicators of growth for the first half of 1999 show no signs of significant slowing.> Despite these positive signs, few analysts believe the expansion can go on forever. As the expansion continues to age, economists will increasingly be called on to predict the next recession. Recession prediction models may help them gauge the likelihood of imminent recession.> Filardo examines the reliability of five popular recession prediction models. He concludes that these models have demonstrated some ability in the past to predict recessions. When judiciously interpreted, the models can help resolve uncertainty about the possibility of future recession.

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Article provided by Federal Reserve Bank of Kansas City in its journal Economic Review.

Volume (Year): (1999)
Issue (Month): Q II ()
Pages: 35-55

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Handle: RePEc:fip:fedker:y:1999:i:qii:p:35-55:n:v.84no.2
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