The Topology of Time Series: Improving Recession Forecasting from Yield Spreads

Recession forecasting ranges from simplistic inference from the inversion of the yield curve to sophisticated models drawing data from across the macroeconomic and nancial spectra. Each has advantages, in simplicity and informativeness respectively, but each su ers for these. Demonstrating how the properties of yield spread time series themselves can foretell of impending recessions we introduce data topology to economics. Through an exploration of the topology of time series we highlight an untapped source of information with the potential to signi cantly improve understanding of the economy without risking the over tting of introducing other variables.