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Predicting Severe Simultaneous Recessions Using Yield Spreads as Leading Indicators

  • Charlotte Christiansen

    ()

    (Aarhus University, Business and Social Sciences and CREATES)

Severe simultaneous recessions are de?ned to occur when at least half of the countries under investigation (Australia, Canada, Germany, Japan, United Kingdom, and United States) are in recession simultaneously. I pose two new research questions that extend upon stylized facts for US recessions. One, are the occurrences of simultaneous recessions predictable? Two, does the yield spread predict future occurrences of simultaneous recessions? I use the indicator for severe simultaneous recessions as the explained variable in probit models. The lagged yield spread is an important explanatory variable, where decreasing yield spreads are a leading indicator for severe simultaneous recessions.

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Paper provided by Department of Economics and Business Economics, Aarhus University in its series CREATES Research Papers with number 2011-20.

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Length: 25
Date of creation: 31 May 2011
Date of revision:
Handle: RePEc:aah:create:2011-20
Contact details of provider: Web page: http://www.econ.au.dk/afn/

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