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Structural Breaks and Non-Linearities for Predicting the Probability of US Recessions using the Spread


  • Galv“o, Ana Beatriz C.

    (European University Institute)


This paper proposes a structural break threshold model (SBT) to the dynamic relationship between US output growth and the spread between long- and short-term interest rates. This model is able to account for non-linearities, parameter changes and the reduction of the variability of output growth. The SBT model gives better in-sample predictions of the probability of US recessions during 1955-1999 than models with only non-linearity or structural breaks. The presence of a structural break affects the timing and the size of predictions of the probability of recession for 2001.

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  • Galv“o, Ana Beatriz C., 2002. "Structural Breaks and Non-Linearities for Predicting the Probability of US Recessions using the Spread," Royal Economic Society Annual Conference 2002 78, Royal Economic Society.
  • Handle: RePEc:ecj:ac2002:78

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