The term spread as a cyclical indicator: a forecasting evaluation
This paper questions whether the spread between long and short-term interests rates is a good cyclical indicator of US economic activity. Probit regressions using the term spread as an independent variable are used to forecast the probability of a recession and the forecasts are evaluated. Using alternative probability thresholds, the turns that were predicted, their timing and the number of recessions that were not forecast were identified and the tradeoff between the number of missed and false predictions is examined. A quantitative measure of the forecast errors is also used to compare the accuracy of probit forecasts with those of two naive standards. Finally, the term spread is evaluated purely as an indicator. It is concluded that this series, by itself, is not a reliable predictor of economic activity.
Volume (Year): 11 (2001)
Issue (Month): 4 ()
|Contact details of provider:|| Web page: http://www.tandfonline.com/RAFE20|
|Order Information:||Web: http://www.tandfonline.com/pricing/journal/RAFE20|
When requesting a correction, please mention this item's handle: RePEc:taf:apfiec:v:11:y:2001:i:4:p:403-409. 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: (Michael McNulty)
If references are entirely missing, you can add them using this form.