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Structural break threshold VARs for predicting US recessions using the spread

  • Ana Beatriz C. Galvao

    (Ibmec Sao Paulo, Rua Maestro Cardim 1170, Sao Paulo SP 01323001, Brazil)

This paper proposes a model to predict recessions that accounts for non-linearity and a structural break when the spread between long- and short-term interest rates is the leading indicator. Estimation and model selection procedures allow us to estimate and identify time-varying non-linearity in a VAR. The structural break threshold VAR (SBTVAR) predicts better the timing of recessions than models with constant threshold or with only a break. Using real-time data, the SBTVAR with spread as leading indicator is able to anticipate correctly the timing of the 2001 recession. Copyright © 2006 John Wiley & Sons, Ltd.

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File URL: http://hdl.handle.net/10.1002/jae.840
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File URL: http://qed.econ.queensu.ca:80/jae/2006-v21.4/
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Article provided by John Wiley & Sons, Ltd. in its journal Journal of Applied Econometrics.

Volume (Year): 21 (2006)
Issue (Month): 4 ()
Pages: 463-487

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Handle: RePEc:jae:japmet:v:21:y:2006:i:4:p:463-487
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