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The continuing power of the yield spread in forecasting recessions

Author

Listed:
  • 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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    File URL: https://www.philadelphiafed.org/-/media/frbp/assets/working-papers/2014/wp14-5.pdf
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    References listed on IDEAS

    as
    1. Victor Zarnowitz & Phillip Braun, 1993. "Twenty-two Years of the NBER-ASA Quarterly Economic Outlook Surveys: Aspects and Comparisons of Forecasting Performance," NBER Chapters, in: Business Cycles, Indicators, and Forecasting, pages 11-94, National Bureau of Economic Research, Inc.
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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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    11. Stark, Tom & Croushore, Dean, 2002. "Forecasting with a real-time data set for macroeconomists," Journal of Macroeconomics, Elsevier, vol. 24(4), pages 507-531, December.
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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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