Predicting recessions with interest rate spreads: A multicountry regime-switching analysis

Ralf Ahrens

No 1999/15, CFS Working Paper Series from Center for Financial Studies (CFS)

Abstract: This study uses Markov-switching models to evaluate the informational content of the term structure as a predictor of recessions in eight OECD countries. The empirical results suggest that for all countries the term spread is sensibly modelled as a two-state regime-switching process. Moreover, our simple univariate model turns out to be a filter that transforms accurately term spread changes into turning point predictions. The term structure is confirmed to be a reliable recession indicator. However, the results of probit estimations show that the markov-switching filter does not significantly improve the forecasting ability of the spread. Klassifikation:

Keywords: term structure; economic fluctuations; forecasting; regime-switching (search for similar items in EconPapers)
JEL-codes: C22 C53 E44 (search for similar items in EconPapers)
Date: 1999
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:cfswop:199915

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