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Does the Survey of Professional Forecasters help predict the shape of recessions in real time?

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  • Eo, Yunjong
  • Morley, James

Abstract

An updated version of our Markov-switching model of U.S. real GDP suggests the COVID-19 recession was more U-shaped than L-shaped. As with linear time series models, it is important to account for extreme outliers during the pandemic, but a simple decay function for volatility from 2020Q2 leads to robust inferences. When considering whether our model could have predicted the shape of recessions in real time, we find that feeding in data from the Survey of Professional Forecasters accurately predicts the nature of recovery at the time of the trough for each of the last four recessions, including the COVID-19 recession.

Suggested Citation

  • Eo, Yunjong & Morley, James, 2023. "Does the Survey of Professional Forecasters help predict the shape of recessions in real time?," Economics Letters, Elsevier, vol. 233(C).
    • Handle: RePEc:eee:ecolet:v:233:y:2023:i:c:s0165176523004457
    DOI: 10.1016/j.econlet.2023.111419
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    More about this item

    Keywords

    L-shaped recession; U-shaped recession; COVID-19; Markov switching; Real-time analysis;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications

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