Predicting Recessions in the Euro Area: A Factor Approach
Robert Goodhead and
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Robert Goodhead: Central Bank of Ireland
Conor Parle: Central Bank of Ireland
No 2/EL/19, Economic Letters from Central Bank of Ireland
Recent economic data have pointed to the potential for weaker economic growth in the euro area. This Letter presents a model of recession probabilities using the first five principal components of a range of macroeconomic, financial and global variables as predictors. This model outperforms a yield curve based method, and points to slightly elevated recession risk in the near term.
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