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The 2001 US recession: what did recession prediction models tell us?

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  • Andrew Filardo

Abstract

How predictable was the recent US recession? This paper evaluates the accuracy of several recession prediction models. In particular, traditional rule-of-thumb models using the composite index of leading indicators (CLI), Neftçi's sequential probability model, a probit model, and Stock and Watson's experimental recession indexes are compared. Despite the relatively mild depth of the recession, the models using the CLI performed particularly well. The results are robust across different types of models and with respect to the use of real-time data. The strong real-time performance stands at odds with earlier sceptical claims about the marginal usefulness of the CLI in predicting cyclical turning points, and complements the results in the earlier research of Filardo (1999). At a more conceptual level, the paper provides general support to the classical business cycle view that turning points of business cycles from expansion to recession are complex, possibly endogenous and nonlinear, phenomena. The results also suggest that the impressive insights of Geoffrey Moore into the theory and construction of the CLI will continue to shape our understanding of business cycles well into the future.

Suggested Citation

  • Andrew Filardo, 2004. "The 2001 US recession: what did recession prediction models tell us?," BIS Working Papers 148, Bank for International Settlements.
  • Handle: RePEc:bis:biswps:148
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    References listed on IDEAS

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    1. Filardo, Andrew J. & Gordon, Stephen F., 1998. "Business cycle durations," Journal of Econometrics, Elsevier, vol. 85(1), pages 99-123, July.
    2. Kling, John L, 1987. "Predicting the Turning Points of Business and Economic Time Series," The Journal of Business, University of Chicago Press, vol. 60(2), pages 201-238, April.
    3. Arthur F. Burns & Wesley C. Mitchell, 1946. "Measuring Business Cycles," NBER Books, National Bureau of Economic Research, Inc, number burn46-1, January.
    4. Diebold, Francis X & Rudebusch, Glenn D, 1989. "Scoring the Leading Indicators," The Journal of Business, University of Chicago Press, vol. 62(3), pages 369-391, July.
    5. Victor Zarnowitz, 1992. "Business Cycles: Theory, History, Indicators, and Forecasting," NBER Books, National Bureau of Economic Research, Inc, number zarn92-1, January.
    6. Robert H. McGuckin & Ataman Ozyildirim & Victor Zarnowitz, 2000. "The Composite Index of Leading Economic Indicators: How to Make it More Timely," Economics Program Working Papers 00-04, The Conference Board, Economics Program.
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    Cited by:

    1. Christian Ragacs & Martin Schneider, 2009. "Why did we fail to predict GDP during the last cycle? A breakdown of forecast errors for Austria," Working Papers 151, Oesterreichische Nationalbank (Austrian Central Bank).

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    Keywords

    US recession; recession prediction models;

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