Summary of What Predicts U.S. Recessions?

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What Predicts U.S. Recessions? summary
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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.

In this summary, you will learn

  • What factors experts analyze to forecast recessions,
  • What proven and new leading indicators improve recession predictions in the short and long term, and
  • How government bond yield spreads can foretell recessions in different countries.
 

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.

 

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...

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