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The continuing power of the yield spread in forecasting recessions

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  • Dean Croushore
  • Katherine Marsten

Abstract

In this paper, we replicate the main results of Rudebusch and Williams (2009), who show that the use of the yield spread in a probit model can predict recessions better than the Survey of Professional Forecasters. We investigate the robustness of their results in several ways: extending the sample to include the 2007-09 recession, changing the starting date of the sample, changing the ending date of the sample, using rolling windows of data instead of just an expanding sample, and using alternative measures of the \actual\" value of real output. Our results show that the Rudebusch-Williams findings are robust in all dimensions.

Suggested Citation

  • Dean Croushore & Katherine Marsten, 2014. "The continuing power of the yield spread in forecasting recessions," Working Papers 14-5, Federal Reserve Bank of Philadelphia.
    • Handle: RePEc:fip:fedpwp:14-5
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    References listed on IDEAS

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    6. Rudebusch, Glenn D. & Williams, John C., 2009. "Forecasting Recessions: The Puzzle of the Enduring Power of the Yield Curve," Journal of Business & Economic Statistics, American Statistical Association, vol. 27(4), pages 492-503.
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    Cited by:

    1. Liu, Weiling & Moench, Emanuel, 2016. "What predicts US recessions?," International Journal of Forecasting, Elsevier, vol. 32(4), pages 1138-1150.

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    Keywords

    Real-time data; Recession forecasts; yield spreads;
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