Evaluating a Leading Indicator: An Application: the Term Spread

Herman Stekler and Tianyu Ye
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Tianyu Ye: The George Washington University

No 2016-004, Working Papers from The George Washington University, Department of Economics, H. O. Stekler Research Program on Forecasting

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; yield spread puzzle (search for similar items in EconPapers)
Pages: 23 pages
Date: 2016-03
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https://www2.gwu.edu/~forcpgm/2016-004.pdf First version, 2016 (application/pdf)

Related works:
Journal Article: Evaluating a leading indicator: an application—the term spread (2017)
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