PREDICTING US 2001 RECESSION, COMPOSITE LEADING ECONOMIC INDICATORS, STRUCTURAL CHANGE AND MONETARY POLICY

Mehdi Mostaghimi ()

The Singapore Economic Review (SER), 2006, vol. 51, issue 03, 343-363

Abstract: In an attempt to predict a peak in the US economy using a classical statistical decision methodology and a Bayesian methodology and using the 1996 revised composite leading economic indicators (CLI), it is learned that the Bayesian models have generally outperformed the classical statistical ones and, among the Bayesian models, the two using two and three consecutive CLI growth rates are superior in reliability and in accuracy. These two models, however, failed to correctly predict the 2001 recession.In investigating the reasons behind their failures, we learned that: (1) if the concurrent data for the economic structure of 1983–1999 are used for the prediction, they have also been able to predict the 2001 recession correctly, but their overall reliability is not as strong as before; (2) given the overwhelming weight of the monetary policy tools in the CLI-1996 design and the combination of the economic and political events in the year 2000, the less than expected effectiveness of the monetary policy since 2001 has contributed to this failure; and (3) a possible structural change in the US economy since 2000 has also contributed to this prediction failure.

Keywords: US economy; predicting recessions; monetary policy; structural change; composite leading indicators; Bayesian probability forecasting; classical statistical decision theory; information theory (search for similar items in EconPapers)
Date: 2006
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.worldscientific.com/doi/abs/10.1142/S0217590806002482
Access to full text is restricted to subscribers

Related works:
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:wsi:serxxx:v:51:y:2006:i:03:n:s0217590806002482

Ordering information: This journal article can be ordered from

DOI: 10.1142/S0217590806002482

Access Statistics for this article

The Singapore Economic Review (SER) is currently edited by Euston Quah

More articles in The Singapore Economic Review (SER) from World Scientific Publishing Co. Pte. Ltd.
Bibliographic data for series maintained by Tai Tone Lim ().