Forecasting recessions using stall speeds

Jeremy J. Nalewaik

No 2011-24, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: This paper presents evidence that the economic stall speed concept has some empirical content, and can be moderately useful in forecasting recessions. Specifically, output tends to transition to a slow-growth phase at the end of expansions before falling into a recession, and the paper designs Markov-switching models that behave in that way. While the switching models using output growth alone produce a considerable number of false positive recession signals, adding the slope of the yield curve, the percent change in housing starts, and the change in the unemployment rate to the model reduces false positives and improves recession forecasting. The switching model is particularly good at forecasting at long horizons, outperforming Blue Chip consensus forecasts.

Keywords: Recessions; Economic forecasting; Business cycles; Markov processes (search for similar items in EconPapers)
Date: 2011
New Economics Papers: this item is included in nep-cba and nep-for
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Citations: View citations in EconPapers (4)

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