Join getAbstract to access the summary!

What Predicts U.S. Recessions?

Join getAbstract to access the summary!

What Predicts U.S. Recessions?

Federal Reserve Bank of New York,

5 min read
5 take-aways
Audio & text

What's inside?

A few critical variables can help experts call the next recession long before it arrives.

auto-generated audio
  • 0.5×
  • 0.75×
  • 1×
  • 1.25×
  • 1.5×
  • 1.75×
1×
auto-generated audio

Editorial Rating

7

Qualities

  • Comprehensive
  • Analytical
  • Innovative

Recommendation

Econometric forecasting is a complex but crucial task, particularly if it can correctly predict imminent changes in the business cycle. Economists Weiling Liu and Emanuel Moench evaluate the ability of macroeconomic models to forecast US recessions over the 1959–2011 period. They make a valuable contribution to an extensive body of research on this topic, revisiting and investigating forecast methods and variables, and exploring ways to optimize them. Their discussion is quite technical and makes for a careful, detailed read. getAbstract recommends this scholarly analysis to forecasters, econometricians and economists.

Summary

Experts’ ability to forecast, well in advance, the onset of a recession is critical for investors, policy makers, companies and individuals. Extensive research since the 1990s has posited a few leading indicators, such as equity market prices, credit factors and the slope of the US Treasury yield curve, as good predictors of prolonged economic slumps. Analyzing how successful these and other variables were in foretelling the seven recessions that occurred in the United States between 1959 and 2011 reinforces the validity of several of these factors and introduces...

About the Authors

Weiling Liu is a doctoral candidate at Harvard Business School, and Emanuel Moench is a research officer at the Federal Reserve Bank of New York.

Comment on this summary