Predicting recessions: financial cycle versus term spread
Claudio Borio,
Mathias Drehmann and
Fan Dora Xia
No 818, BIS Working Papers from Bank for International Settlements
Abstract:
Financial cycles can be important drivers of real activity, but there is scant evidence about how well they signal recession risks. We run a horse race between the term spread - the most widely used indicator in the literature - and a range of financial cycle measures. Unlike most papers, ours assesses forecasting performance not just for the United States but also for a panel of advanced and emerging market economies. We find that financial cycle measures have significant forecasting power both in and out of sample, even for a three-year horizon. Moreover, they outperform the term spread in nearly all specifications. These results are robust to different recession specifications.
Keywords: financial cycle; term spread; recession risk; panel probit mode (search for similar items in EconPapers)
JEL-codes: C33 E37 E44 (search for similar items in EconPapers)
Pages: 29 pages
Date: 2019-10
New Economics Papers: this item is included in nep-fdg, nep-for, nep-ifn and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (20)
Downloads: (external link)
https://www.bis.org/publ/work818.pdf Full PDF document (application/pdf)
https://www.bis.org/publ/work818.htm (text/html)
Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
HTML/Text
Persistent link: https://EconPapers.repec.org/RePEc:bis:biswps:818
Access Statistics for this paper
More papers in BIS Working Papers from Bank for International Settlements Contact information at EDIRC.
Bibliographic data for series maintained by Martin Fessler ().