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Forecasting recessions using financial variables: the French case

  • Francis Bismans

    ()

  • Reynald Majetti

    ()

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    In this article, we focus on the ability of two financial variables—the yield curve spread and the euro–US dollar exchange rate—to predict French recessions over the period 1979–2010. First, we propose a turning point chronology for the French business cycle based on a classical conception of economic cycles and a non-parametric dating algorithm applied to the real GDP series. Second, static and dynamic probit models are developed and estimated to produce the recession probabilities. In-sample results show that the dynamic specification performs better than the static one and, above all, that the exchange rate has a stronger predictive power than the yield curve. Out-of-sample results finally confirm the predominant role assigned to the exchange rate in predicting the latest recession occurred in 2008. Copyright Springer-Verlag 2013

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    Article provided by Springer in its journal Empirical Economics.

    Volume (Year): 44 (2013)
    Issue (Month): 2 (April)
    Pages: 419-433

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    Handle: RePEc:spr:empeco:v:44:y:2013:i:2:p:419-433
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