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Forecasting recessions using financial variables: the French case


  • Francis Bismans


  • Reynald Majetti



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

Suggested Citation

  • Francis Bismans & Reynald Majetti, 2013. "Forecasting recessions using financial variables: the French case," Empirical Economics, Springer, vol. 44(2), pages 419-433, April.
  • Handle: RePEc:spr:empeco:v:44:y:2013:i:2:p:419-433 DOI: 10.1007/s00181-012-0550-z

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    References listed on IDEAS

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    Cited by:

    1. António R. Antunes & Diana Bonfim & Nuno Monteiro & Paulo M.M. Rodrigues, 2016. "Forecasting banking crises with dynamic panel probit models," Working Papers w201613, Banco de Portugal, Economics and Research Department.
    2. Fernandez-Perez, Adrian & Fernández-Rodríguez, Fernando & Sosvilla-Rivero, Simón, 2014. "The term structure of interest rates as predictor of stock returns: Evidence for the IBEX 35 during a bear market," International Review of Economics & Finance, Elsevier, vol. 31(C), pages 21-33.

    More about this item


    French business cycle; Dynamic probit; Recession forecasts; Term spread; EUR/USD exchange rate; C22; C25; E32; E37;

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C25 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions; Probabilities
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications


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