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Forecasting US Recessions: The Role of Sentiments

  • Charlotte Christiansen

    ()

    (Aarhus University and CREATES)

  • Jonas Nygaard Eriksen

    ()

    (Aarhus University and CREATES)

  • Stig V. Møller

    ()

    (Aarhus University and CREATES)

We examine sentiment variables as new predictors for US recessions. We combine sentiment variables with either classical recession predictors or with common factors based on a large panel of macroeconomic and ?nancial variables. Sentiment variables hold vast predictive power for US recessions in excess of both the classical recession predictors and the common factors. The strong importance of the sentiment variables is documented both in-sample and out-of-sample.

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File URL: ftp://ftp.econ.au.dk/creates/rp/13/rp13_14.pdf
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Paper provided by School of Economics and Management, University of Aarhus in its series CREATES Research Papers with number 2013-14.

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Length: 34
Date of creation: 04 2013
Date of revision:
Handle: RePEc:aah:create:2013-14
Contact details of provider: Web page: http://www.econ.au.dk/afn/

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  1. Carroll, Christopher D & Fuhrer, Jeffrey C & Wilcox, David W, 1994. "Does Consumer Sentiment Forecast Household Spending? If So, Why?," American Economic Review, American Economic Association, vol. 84(5), pages 1397-1408, December.
  2. Chamberlain, Gary & Rothschild, Michael, 1982. "Arbitrage, Factor Structure, and Mean-Variance Analysis on Large Asset Markets," Scholarly Articles 3230355, Harvard University Department of Economics.
  3. Charlotte Christiansen & Maik Schmeling & Andreas Schrimpf, 2010. "A Comprehensive Look at Financial Volatility Prediction by Economic Variables," CREATES Research Papers 2010-58, School of Economics and Management, University of Aarhus.
  4. George A. Akerlof, 2009. "How Human Psychology Drives the Economy and Why It Matters," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 91(5), pages 1175-1175.
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