Nowcasting Recession Risk

Francesco Furno and Domenico Giannone

No 19483, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: We propose a simple yet robust framework to nowcast recession risk at a monthly frequency in both the United States and the Euro Area. Our nowcast leverages both macroeconomic and financial conditions, and is available the first business day after the reference month closes. In particular, we argue that financial conditions are not only useful to predict future downturns–as emphasized by the existing literature–but they are also useful to distinguish between expansions and downturns as they unfold. We then connect our recession risk nowcast with growth-at-risk by drawing on the literature on distributional regressions and quantile regressions. Finally, we benchmark our nowcast with the Survey of Professional Forecasters (SPF) and show that, while both have a similar ability to identify downturns, the former is more accurate in correctly identifying periods of expansion.

Keywords: Business cycles; Financial conditions; Macroeconomic forecasting; Risk modeling and forecasting (search for similar items in EconPapers)
JEL-codes: C32 C53 E32 (search for similar items in EconPapers)
Date: 2024-09
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Chapter: Nowcasting recession risk (2024)
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