What predicts U.S. recessions?

Arbeitspapier

We reassess the predictability of U.S. recessions at horizons from three months to two years ahead for a large number of previously proposed leading-indicator variables. We employ an efficient probit estimator for partially missing data and assess relative model performance based on the receiver operating characteristic (ROC) curve. While the Treasury term spread has the highest predictive power at horizons four to six quarters ahead, adding lagged observations of the term spread significantly improves the predictability of recessions at shorter horizons. Moreover, balances in broker-dealer margin accounts significantly improve the precision of recession predictions, especially at horizons further out than one year.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Staff Report ; No. 691

Classification and Topics

• Classification: Wirtschaft ; Model Evaluation, Validation, and Selection ; Forecasting Models; Simulation Methods ; Business Fluctuations; Cycles ; Prices, Business Fluctuations, and Cycles: Forecasting and Simulation: Models and Applications
• Subject: recession predictability ; ROC ; term spread ; leading indicators ; efficient probit estimator

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Liu, Weiling ; Moench, Emanuel
• Event: Veröffentlichung
• (who): Federal Reserve Bank of New York
• (where): New York, NY
• (when): 2014

Further information

• Handle: http://hdl.handle.net/10419/120818
• Last update: 10.03.2025, 11:42 AM CET