Works like a Sahm: Recession indicators and the Sahm rule

Thomas Ash and Jerry Nickelsburg

Economics Letters, 2024, vol. 242, issue C

Abstract: We analyse the use of the Sahm rule as a recession predictor/indicator. We use two approaches: (1) an empirical analysis of historic recession episodes; and (2) stochastic simulations in a VAR framework. We find that in both the Sahm rule is a poor predictor of future recessions. The VAR exercise suggests this is because of its focus on the unemployment rate, which misses non-labour market shocks. This analysis suggests the Sahm rule should be restricted to the purpose that its creator intended.

Keywords: Recessions; Sahm rule; US economy (search for similar items in EconPapers)
JEL-codes: E00 E32 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:242:y:2024:i:c:s0165176524003628

DOI: 10.1016/j.econlet.2024.111878

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