IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this article or follow this journal

Forecasting recessions using financial variables: the French case

  • Francis Bismans

    ()

  • Reynald Majetti

    ()

Registered author(s):

    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

    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.

    File URL: http://hdl.handle.net/10.1007/s00181-012-0550-z
    Download Restriction: Access to full text is restricted to subscribers.

    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.

    Article provided by Springer in its journal Empirical Economics.

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

    as
    in new window

    Handle: RePEc:spr:empeco:v:44:y:2013:i:2:p:419-433
    Contact details of provider: Postal: Stumpergasse 56, A-1060 Vienna
    Phone: ++43 - (0)1 - 599 91 - 0
    Fax: ++43 - (0)1 - 599 91 - 555
    Web page: http://link.springer.de/link/service/journals/00181/index.htm

    More information through EDIRC

    Order Information: Web: http://link.springer.de/orders.htm

    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.:

    as in new window
    1. de Jong, Robert M. & Woutersen, Tiemen, 2011. "Dynamic Time Series Binary Choice," Econometric Theory, Cambridge University Press, vol. 27(04), pages 673-702, August.
    2. 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.
    3. Marco Del Negro, 2001. "Turn, turn, turn: Predicting turning points in economic activity," Economic Review, Federal Reserve Bank of Atlanta, issue Q2, pages 1-12.
    4. repec:cup:cbooks:9780521632423 is not listed on IDEAS
    5. Marcelle Chauvet & Simon Potter, 2001. "Forecasting recessions using the yield curve," Staff Reports 134, Federal Reserve Bank of New York.
    6. Richard Startz, . "Binomial Autoregressive Moving Average Models with an Application to U.S. Recessions," Working Papers UWEC-2006-10-FC, University of Washington, Department of Economics.
    7. Don Harding & Adrian Pagan, 2009. "An Econometric Analysis of Some Models for Constructed Binary Time Series," NCER Working Paper Series 39, National Centre for Econometric Research, revised 02 Jul 2009.
    8. Eichengreen, Barry & Watson, Mark W & Grossman, Richard S, 1985. "Bank Rate Policy under the Interwar Gold Standard: A Dynamic Probit Model," Economic Journal, Royal Economic Society, vol. 95(379), pages 725-45, September.
    9. Benati, Luca & Goodhart, Charles, 2008. "Investigating time-variation in the marginal predictive power of the yield spread," Journal of Economic Dynamics and Control, Elsevier, vol. 32(4), pages 1236-1272, April.
    10. Harding, Don & Pagan, Adrian, 2002. "Dissecting the cycle: a methodological investigation," Journal of Monetary Economics, Elsevier, vol. 49(2), pages 365-381, March.
    11. Gerhard Bry & Charlotte Boschan, 1971. "Foreword to "Cyclical Analysis of Time Series: Selected Procedures and Computer Programs"," NBER Chapters, in: Cyclical Analysis of Time Series: Selected Procedures and Computer Programs, pages -1 National Bureau of Economic Research, Inc.
    12. Ken Nyholm, 2007. "A New Approach to Predicting Recessions," Economic Notes, Banca Monte dei Paschi di Siena SpA, vol. 36(1), pages 27-42, 02.
    13. Arturo Estrella, 2005. "Why Does the Yield Curve Predict Output and Inflation?," Economic Journal, Royal Economic Society, vol. 115(505), pages 722-744, 07.
    14. Michael Dotsey, 1998. "The predictive content of the interest rate term spread for future economic growth," Economic Quarterly, Federal Reserve Bank of Richmond, issue Sum, pages 31-51.
    15. Gerhard Bry & Charlotte Boschan, 1971. "Cyclical Analysis of Time Series: Selected Procedures and Computer Programs," NBER Books, National Bureau of Economic Research, Inc, number bry_71-1, December.
    16. Arthur F. Burns & Wesley C. Mitchell, 1946. "Measuring Business Cycles," NBER Books, National Bureau of Economic Research, Inc, number burn46-1, December.
    17. repec:cup:cbooks:9780521634809 is not listed on IDEAS
    18. Harvey, Campbell R., 1988. "The real term structure and consumption growth," Journal of Financial Economics, Elsevier, vol. 22(2), pages 305-333, December.
    19. 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.
    20. Canova, Fabio, 1994. "Detrending and turning points," European Economic Review, Elsevier, vol. 38(3-4), pages 614-623, April.
    21. Fabio Moneta, 2005. "Does the Yield Spread Predict Recessions in the Euro Area?," International Finance, Wiley Blackwell, vol. 8(2), pages 263-301, 08.
    22. Campbell R. Harvey, 1997. "The Relation between the Term Structure of Interest Rates and Canadian Economic Growth," Canadian Journal of Economics, Canadian Economics Association, vol. 30(1), pages 169-93, February.
    Full references (including those not matched with items on IDEAS)

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    When requesting a correction, please mention this item's handle: RePEc:spr:empeco:v:44:y:2013:i:2:p:419-433. 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: (Guenther Eichhorn)

    or (Christopher F Baum)

    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.

    This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.