Evaluating a Leading Indicator: An Application: the Term Spread
Herman Stekler and
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Tianyu Ye: The George Washington University
No 2016-004, Working Papers from The George Washington University, Department of Economics, H. O. Stekler Research Program on Forecasting
This paper analyzes the procedures that have previously been used to evaluate indicators. These methods determine whether the indicator correctly classifies periods when there was (not) a recession. These approaches do not show whether or not an indicator signaled a turn or failed to predict it. This paper then presents a new approach and applies it to the term spread series. The results are mixed because the indicator predicts every recession but also generates a large number of false signals. This result may explain why economists do not always place great weight on this series.
Keywords: leading series; ROC curve; yield spread puzzle (search for similar items in EconPapers)
Pages: 23 pages
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https://www2.gwu.edu/~forcpgm/2016-004.pdf First version, 2016 (application/pdf)
Journal Article: Evaluating a leading indicator: an application—the term spread (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:gwc:wpaper:2016-004
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