Residential investment and recession predictability
Knut Are Aastveit,
Andre Anundsen () and
Eyo Herstad
International Journal of Forecasting, 2019, vol. 35, issue 4, 1790-1799
Abstract:
We assess the importance of residential investment for the prediction of economic recessions for an unbalanced panel of 12 OECD countries over the period 1960Q1–2014Q4. Our approach is to estimate various probit models with different leading indicators and evaluate their relative prediction accuracies using the area under the receiver operating characteristic curve as our forecasting performance metric. We document that residential investment contains information that is useful for predicting recessions both in-sample and out-of-sample. This result is robust to adding typical leading indicators, such as the term spread, stock prices, consumer confidence surveys and oil prices. It is shown that residential investment is particularly useful for the prediction of recessions for countries with high home-ownership rates. Finally, in a separate exercise for the US, we show that the predictive ability of residential investment is — in a broad sense — robust to employing real-time data.
Keywords: Recession predictability; Housing; Leading indicators; Real-time data; Panel data (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (11)
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Working Paper: Residential investment and recession predictability (2017)
Working Paper: Residential investment and recession predictability (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:intfor:v:35:y:2019:i:4:p:1790-1799
DOI: 10.1016/j.ijforecast.2018.09.008
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