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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) Downloads
Working Paper: Residential investment and recession predictability (2017) Downloads
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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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