Do asset price drops foreshadow recessions?

John Bluedorn, Jörg Decressin and Marco Terrones

International Journal of Forecasting, 2016, vol. 32, issue 2, 518-526

Abstract: This paper examines the usefulness of asset prices in predicting the beginnings of recessions in the G-7 countries. It finds that equity/house price drops have a substantial marginal effect on the likelihood of a new recession. Increased market uncertainty, which is a second-moment variable associated with equity price changes, is also a useful predictor of new recessions in these countries. These findings are robust to the inclusion of the term spread and oil prices. The new recession forecasting performance of our baseline model is superior to that of a similar model estimated over all recession and expansion periods, highlighting a difference between the probabilities of a new recession versus a continuing recession.

Keywords: Business cycles; Macroeconomic forecasting; Financial markets; Uncertainty; Oil prices; Binary dependent variable models (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (16)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0169207015001077
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Do Asset Price Drops Foreshadow Recessions? (2013)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:intfor:v:32:y:2016:i:2:p:518-526

DOI: 10.1016/j.ijforecast.2015.06.005

Access Statistics for this article

International Journal of Forecasting is currently edited by R. J. Hyndman

More articles in International Journal of Forecasting from Elsevier
Bibliographic data for series maintained by Catherine Liu ().