Assessing Recession Risks with State-Level Data

Hie Joo Ahn, Yunjong Eo () and Lucas Moyon
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Hie Joo Ahn: https://www.federalreserve.gov/econres/hie-joo-ahn.htm

No 2026-01-07, FEDS Notes from Board of Governors of the Federal Reserve System (U.S.)

Abstract: This note evaluates recession risks at the national and state levels using a state-of-the-art Bayesian Markov-switching model that distinguishes between full-recovery recessions (U-shaped recessions) and those that generate lasting damage, or hysteresis (L-shaped recessions). While states exhibit considerable heterogeneity in their business-cycle experiences, most saw some degree of hysteresis in the past recessions that occurred prior to the COVID pandemic. By contrast, the model classifies the pandemic-induced recession as a full-recovery episode with a low likelihood of hysteresis, reflecting the rapid rebound from the sharp downturn. The model suggests that the risk of a national recession has been low of late, though the state-level data reveal pockets of risk.

Date: 2026-01-07
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgfn:2026-01-07

DOI: 10.17016/2380-7172.3992

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