Forecasting US recessions: the role of economic uncertainty

Valerio Ercolani and Filippo Natoli

No 1299, Temi di discussione (Economic working papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: This paper highlights the role of macroeconomic and financial uncertainty in predicting US recessions. In-sample forecasts using probit models indicate that these two variables are the best predictors of recessions at short horizons. Macroeconomic uncertainty has the highest predictive power up to 7 months ahead and becomes the second best predictor --- after the yield curve slope --- at longer horizons. Using data up to end-2018, out-of-sample forecasts show that uncertainty contributed significantly to lowering the probability of a recession in 2019, which indeed did not occur.

Keywords: macroeconomic and financial uncertainty; yield curve slope; recession; probit forecasting model. (search for similar items in EconPapers)
JEL-codes: D81 E32 E37 E44 (search for similar items in EconPapers)
Date: 2020-09
New Economics Papers: this item is included in nep-fdg, nep-for and nep-mac
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Citations: View citations in EconPapers (8)

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Journal Article: Forecasting US recessions: The role of economic uncertainty (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:bdi:wptemi:td_1299_20

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