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Forecasting turning points in Canada

Author

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  • Reinhart, Carmen
  • Reinhart, Vincent

Abstract

Economists have long been involved in the search for a few key indicators that predict the behavior of market economies. For Canada, it has been shown that the yield curve reliably tilts down and that real M1 growth declines before economic contraction, but this has been demonstrated almost exclusively in the context of single estimation equations or atheoretical VARs. This paper offers an alternative approach to the study of economic turning points. To qualify as a business-cycle indicator, a variable must behave differently when an economy is approaching or in recession than it does during economic expansions. That simple logic admits a variety of parametric and nonparametric tests of a variable’s usefulness, in forecasting. We examine the behavior around recessions of sixteen Canadian and U.S. time series. In the end we find that only the slopes of the Canadian and the U.S. term structure meet the prespecified criteria; the change in the nominal MCI and in real M1 follow behind.

Suggested Citation

  • Reinhart, Carmen & Reinhart, Vincent, 1996. "Forecasting turning points in Canada," MPRA Paper 13884, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:13884
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    File URL: https://mpra.ub.uni-muenchen.de/13884/1/MPRA_paper_13884.pdf
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    References listed on IDEAS

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    Cited by:

    1. Carmen M. Reinhart & Graciela L. Kaminsky, 1999. "The Twin Crises: The Causes of Banking and Balance-of-Payments Problems," American Economic Review, American Economic Association, vol. 89(3), pages 473-500, June.
    2. Pons Novell, J., 2002. "Ciclo de la economía española y contenido informativo de los tipos de interés," Estudios de Economía Aplicada, Estudios de Economía Aplicada, vol. 20, pages 583-598, Diciembre.
    3. Sonia de Lucas Santos & M. Jesús Delgado Rodríguez & Inmaculada Álvarez Ayuso & José Luis Cendejas Bueno, 2011. "Los ciclos económicos internacionales: antecedentes y revisión de la literatura," Cuadernos de Economía - Spanish Journal of Economics and Finance, ELSEVIER, vol. 34(95), pages 73-84, Agosto.
    4. Arturo Estrella & Frederic S. Mishkin, 1998. "Predicting U.S. Recessions: Financial Variables As Leading Indicators," The Review of Economics and Statistics, MIT Press, vol. 80(1), pages 45-61, February.
    5. Francis X. Diebold & Glenn D. Rudebusch, 2001. "Five questions about business cycles," Economic Review, Federal Reserve Bank of San Francisco, pages 1-15.

    More about this item

    Keywords

    business cycles monetary policy yield curve interest rates;

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit

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