Forecasting U.S. Recessions with Macro Factors

Sebastian Fossati

No 2013-3, Working Papers from University of Alberta, Department of Economics

Abstract: Dynamic factors estimated from panels of macroeconomic indicators are used to predict future recessions using probit models. Three factors are considered: a bond and exchange rates factor; a stock market factor; a real activity factor. Three results emerge. First, models that use only financial indicators exhibit a large deterioration in fit after 2005. Second, models that use factors yield better fit than models that use indicators directly. Out-of-sample forecasting exercises confirm these results for 3-, 6-, and 12-month horizons using both ex-post revised data and real-time data. Third, results show evidence that data revisions affect factors less than individual indicators.

Keywords: recession; forecasting; factors; probit model (search for similar items in EconPapers)
JEL-codes: C22 C25 E32 (search for similar items in EconPapers)
Pages: 31 pages
Date: 2013-04-03
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Persistent link: https://EconPapers.repec.org/RePEc:ris:albaec:2013_003

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