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Nowcasting Recession Risk

Author

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  • Furno, Francesco
  • Giannone, Domenico

Abstract

We propose a simple yet robust framework to nowcast recession risk at a monthly frequency in both the United States and the Euro Area. Our nowcast leverages both macroeconomic and financial conditions, and is available the first business day after the reference month closes. In particular, we argue that financial conditions are not only useful to predict future downturns–as emphasized by the existing literature–but they are also useful to distinguish between expansions and downturns as they unfold. We then connect our recession risk nowcast with growth-at-risk by drawing on the literature on distributional regressions and quantile regressions. Finally, we benchmark our nowcast with the Survey of Professional Forecasters (SPF) and show that, while both have a similar ability to identify downturns, the former is more accurate in correctly identifying periods of expansion.

Suggested Citation

  • Furno, Francesco & Giannone, Domenico, 2024. "Nowcasting Recession Risk," CEPR Discussion Papers 19483, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:19483
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    Keywords

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    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods

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