Download or read book Yield curve Based Probit Models for Forecasting U S Recessions written by Heikki Kauppi and published by . This book was released on 2008 with total page 36 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Yield curve Based Probit Models for Forecasting US Recession written by and published by . This book was released on 2008 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book The Predictive Power of Yield Curve in Forecasting U S Recessions written by Hardeep Bamara and published by . This book was released on 2006 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: Since the last recession in 2001, the U.S. economy has continued to grow; yet speculation of a recession has surfaced on the basis of the yield curve flattening. Yield curve inversion has been strongly associated with U.S. recessions over the last forty-six years. This paper examines the predictive power of the yield curve, the index of leading indicators, monetary growth and stock returns in forecasting U.S. recessions. A probit model is used to generate recession probability forecasts three, six, nine and twelve months forward. Empirical results show that the yield curve embodies the highest degree of explanatory power beyond a three-month forecast horizon. Results for the last two recessions are analyzed as well as forecasts going forward into 2006. As a final observation, an asset allocation trading strategy is tested out-of-sample.
Download or read book The Probability of Recession written by Ryan Ratcliff and published by . This book was released on 2013 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: This letter evaluates two types of forecasts from probit models that use the slope of the yield curve (“term spread”) to forecast NBER recessions, using an evaluation toolkit common in statistics and meteorology. The probit models provide excellent non-probabilistic yes/no predictions of recessions when the estimated probabilities rise above an optimally chosen threshold. In particular, in the summer of 2006, most of the models considered provided an out-of-sample prediction of the 2007 recession. However, the probabilistic forecasts (i.e. estimated probabilities) are poorly calibrated: they have little relation to the historical frequency of recession observations conditional on the level of the term spread. Thus, probit models are good at giving warning of coming recessions, but fall short of providing a meaningful frequency-based “probability of recession” along the lines of “when the term spread has been at this level in the past, 35% of observations a year later occurred during recessions.”
Download or read book Predicting a Recession written by Marcelle Chauvet and published by . This book was released on 2001 with total page 8 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Forecasting US Recessions written by Valerio Ercolani and published by . This book was released on 2020 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Forecasting Recessions Using the Yield Curve written by Marcelle Chauvet and published by . This book was released on 2006 with total page 33 pages. Available in PDF, EPUB and Kindle. Book excerpt: We compare forecasts of recessions using four different specifications of the probit model: a time invariant conditionally independent version; a business cycle specific conditionally independent model; a time invariant probit with autocorrelated errors; and a business cycle specific probit with autocorrelated errors. The more sophisticated versions of the model take into account some of the potential underlying causes of the documented predictive instability of the yield curve. We find strong evidence in favor of the more sophisticated specification, which allows for multiple break-points across business cycles and autocorrelation. We also develop a new approach to the construction of real time forecasting of recession probabilities.
Download or read book A New Way of Forecasting Recessions written by Edward E. Leamer and published by . This book was released on 2022 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper proposes a new way of displaying and analyzing macroeconomic time series to form recession forecasts. The proposed data displays contain the last three years of each expansion. These allow observers to see for themselves what is different about the last year before recession. Based on a statistical model, the most recent data are then probabilistically inserted into these images where the recent data are most similar to the historical data. This amounts to a forecast. The traditional probit model used to forecast recessions inappropriately treats every observation as a separate experiment. This new method deals with these intra-correlation issues. The one variable that is causing a recession alarm is inflation. The unemployment rate is also alarming if the covid-19 data are omitted. The slope of the yield curve, the three-month Treasury yield, and housing starts are all two or three years from the end of the expansion. A probit model that conducts a "horse race" among these five variables reveals it is the bond market variables that best predict recessions. This leaves the Fed under control, but the 1970s data suggests it takes a recession to combat high inflation.
Download or read book Yield Curve as a Predictor of a Recession Evidence from the US Economy written by Michel Guirguis and published by . This book was released on 2019 with total page 19 pages. Available in PDF, EPUB and Kindle. Book excerpt: In this article, we are testing the effects of an inverted Yield curve, as a result of the relationship between the short and long-term interest rates of the US Treasury with constant maturities. Our aim is to illustrate and spot cycles that created the US recession in 2008 based on Estrella and Mishkin, (1996), spread definition. In our model, the recession probability is calculated by using a 99% confidence level of the standard normal cumulative distribution function. Then, we will apply a probit model to measure the relationship between a binary variable strength such as prediction of a recession over a number of other variables such as the logarithmic monthly returns of the Federal funds effective rates, and the logarithmic monthly returns of the seasonally adjusted money supply, (M2). The data that we have used are monthly returns starting from 01/10/1993 to 01/01/2013, which total to 231 observations. The data was obtained from the Federal Reserve Statistical Release Department and the symbols of the series are H.6, and H.15.
Download or read book The Yield Curve As A Forecasting Tool written by Melvin Khomo and published by LAP Lambert Academic Publishing. This book was released on 2010-04 with total page 112 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper examines the ability of the yield curve to predict recessions in South Africa, and compares its predictive power with other commonly used variables that include the growth rate in real money supply, changes in stock prices and the index of leading economic indicators. The study also makes an attempt to find out if monetary policy explains the yield spread s predictive power with regards to future economic activity. Regarding methodology, the standard probit model proposed by Estrella and Mishkin (1996) that directly estimates the probability of the economy going into recession is used. Results from this model are compared with a modified probit model suggested by Dueker (1997) that includes a lagged dependent variable. Results presented in the paper provide further evidence that the yield curve, as represented by the yield spread between 3-month and 10-year government paper, can be used to estimate the likelihood of recessions in South Africa. The yield spread can produce recession forecasts up to 18 months, although it s best predictive power is seen at two quarters.
Download or read book The Yield Curve s Predictive Power on U S Recessions written by John William Lahman and published by . This book was released on 2012 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: A negative-sloped Treasury curve is often cited in financial news articles and by Federal Reserve economists as a predictor of recessions. This report reviews previously published research examining the reliability of yield curves predicting recessions. Findings show that the yield curve inverts two or more quarters before recessions, with short-term interest rates rising above long-term interest rates. Probit regression has proven a reliable method for generating estimated probabilities of future recessions that, in turn, are useful for both monetary policy and asset allocation decision-making.
Download or read book Forecasting U S Recessions and Economic Activity written by Rachidi Kotchoni and published by . This book was released on 2016 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper proposes a framework to produce multi-horizon forecasts of business cycle turning points, average forecasts of economic activity as well as conditional forecasts that depend on whether the horizon of interest belongs to a recession episode or not. Our forecasting models take the form of an autoregression (AR) of order one that is augmented with either a probability of recession or an inverse Mills ratio. Our empirical results suggest that a static Probit model that uses only the TS as regressor provides comparable fit to the data as more sophisticated non-static Probit models. We also find that the dynamic patterns of the term structure of recession probabilities are quite informative about business cycle turning points. Our most parsimonious AAR model delivers better out-of-sample forecasts of GDP growth than the benchmark models considered. We construct term structures of recession probabilities since the last oficial NBER truning point. The results suggest that there has been no harbinger of a r.
Download or read book Analyzing the Effectiveness of the U S Yield Curve as a Leading Economic Indicator written by Aditya Kalgutkar and published by . This book was released on 2018 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This thesis aims to contribute to the growing body of literature investigating the United States yield curves predictive power of recessions. First, I discuss yield curve theory, explaining the structure of the yield curve and linking it to forward-looking interest rate expectations. I follow with a discussion of monetary policy, transmission lag, and potential pollutants of the yield curves signal to establish the importance of the slope of the yield curve and to highlight the need for its evaluation as a reliable economic indicator. I then conduct a literature review covering the various techniques and approaches used in this field over the past few decades. Drawing from previous conclusions, I create a framework for study largely based on the probit model. I look at a full sample, a pre-1995 sample, and a post-1995 sample and analyze R2 and log-likelihood values to assess the fits of various probit models. I conclude my analysis using vector autoregression (VAR) to measure the response between percent change in GDP and the slope of the yield curve.From my analysis, I conclude that the yield curve still holds its standing as an effective forward-looking indicator, especially when used in conjunction with other explanatory variables in probit models. The yield curve is fundamentally tied to the markets expectations for future interest rates, which are determined by monetary policy. As long as central banks maintain credibility and markets continue to regard forward guidance, the yield curve should continue to be reliable.
Download or read book Do Leading Indicators Forecast U S Recessions A Nonlinear Re Evaluation Using Historical Data written by Vasilios Plakandaras and published by . This book was released on 2019 with total page 28 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper analyses to what extent a selection of leading indicators is able to forecast U.S. recessions, by means of both dynamic probit models and Support Vector Machine (SVM) models, using monthly data from January 1871 to June 2016. The results suggest that the probit models predict U.S. recession periods more accurately than SVM models up to six months ahead, while the SVM models are more accurate over longer horizons. Furthermore, SVM models appear to distinguish between recessions and tranquil periods better than probit models do. Finally, the most accurate forecasting models are those that include oil, stock returns and the term spread as leading indicators.
Download or read book Predicting the U S Recessions with Housing Starts in Dynamic Probit Models written by Yan Cui and published by . This book was released on 2015 with total page 80 pages. Available in PDF, EPUB and Kindle. Book excerpt: The crash of the U.S. housing market and the 2007-2009 recession that followed have reignited discussion about forecasting recessions. Most recessions have in fact been preceded by plummets in the housing industry in the U.S. history. The present study examines the predictive power of housing starts using dynamic probit models. The yield spread between the ten-year Treasury bond and three-month Treasury bill rates, is also adopted to further demonstrate the predictive properties of the housing variable. Different model functional forms are explored in which the lag structure, especially the growth rate term for housing starts, is constructed in an innovative way to serve the comparison purpose between the current study and previous literature. Instead of the month-to-month growth, the housing variable is constructed as the monthly growth rate over time. The major objective of the present study is to emphasize the notion that it is the sustained decline in housing starts, not a temporary drop, that serves better as a recession predictor. Another proposal of this study is the adoption of the growth rate in housing starts and the interest rate combination which is found superior than the individual specification. Both in-sample and out-of-sample analyses are carried out and iterated forecasting procedure is implemented. The Adjusted-Pseudo R 2 measure and the Diebold-Mariano statistics, are employed to examine and compare the predictive accuracy of models.
Download or read book Predictive Power of Markovian Models written by Ruilin Tian and published by . This book was released on 2018 with total page 36 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper brings new evidence of predicting the U.S. recessions through Markovian models. The Markovian models, including the Hidden Markov and Markov models, incorporate the temporal autocorrelation of binary recession indicators in a more traditional and natural way. Considering interest rates and spreads, stock prices, monetary aggregates, and output as the candidate predictors, we examine the out-of-sample performance of the Markovian models in predicting the recessions one to twelve months ahead. The Markovian models are superior to the probit models in detecting a recession and capturing the recession duration. We find the "one-month lag phenomenon" that the best Markovian model supported by statistical model selection procedures can always recognize the onset of a recession one month after it starts. In addition, the yield spread continues to serve as the most e cient predictor variable in explaining business cycles.
Download or read book Predicting National and Regional Recessions Using Probit Modeling and Interest Rate Spreads written by Gary Shoesmith and published by . This book was released on 2003 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: This study extends the work of Estrella and Mishkin (1996, 1998) to show that interest-rate spreads and probit modeling can be used to predict recessions in many states as well as the nation. State recessions are defined as two or more consecutive quarters of declining real gross state product. The yield spread, SPREAD, is defined as the difference between the 10-year Treasury bond rate and the three-month Treasury bill rate. The national results are similar to those obtained by Estrella and Mishkin. Probit models are estimated for all 50 states using SPREAD and unemployment insurance claims, UI, as alternative explanatory variables. For 34 of the 50 states, SPREAD is significant at the 0.01 level as a predictor of state recessions. Much weaker results are obtained using UI. Simulations for the 1979-2001 period are used to compute loss functions for the national and state models at probability screens of 30, 40, 50, and 60 percent. The results demonstrate that probit models based on can be useful in improving business and policy decisions in many states.
