Evaluating a leading indicator: an application—the term spread

Herman Stekler and Tianyu Ye
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Tianyu Ye: George Washington University

Empirical Economics, 2017, vol. 53, issue 1, No 11, 183-194

Abstract: Abstract This paper analyzes the procedures that have previously been used to evaluate indicators. These methods determine whether the indicator correctly classifies periods when there was (not) a recession. These approaches do not show whether or not an indicator signaled a turn or failed to predict it. This paper then presents a new approach and applies it to the term spread series. The results are mixed because the indicator predicts every recession but also generates a large number of false signals. This result may explain why economists do not always place great weight on this series.

Keywords: Leading series; ROC curve; Precision–Recall curve; Yield spread puzzle (search for similar items in EconPapers)
JEL-codes: E37 (search for similar items in EconPapers)
Date: 2017
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Working Paper: Evaluating a Leading Indicator: An Application: the Term Spread (2016)
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DOI: 10.1007/s00181-016-1200-7

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