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Improved recession dating using stock market volatility

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  • Huang, Yu-Fan
  • Startz, Richard

Abstract

We offer an improved dating of U.S. business cycle turning points both retrospectively and in real time. This improvement is made possible by augmenting existing Markov-switching dynamic factor models with additional information on the stock return volatility. The model improves the prediction of the state of the economy using fully revised data significantly. Real-time identification can be made noticeably earlier than the NBER announcements, beating both the peak and trough announcements for recent recessions by several months.

Suggested Citation

  • Huang, Yu-Fan & Startz, Richard, 2020. "Improved recession dating using stock market volatility," International Journal of Forecasting, Elsevier, vol. 36(2), pages 507-514.
    • Handle: RePEc:eee:intfor:v:36:y:2020:i:2:p:507-514
    DOI: 10.1016/j.ijforecast.2019.07.004
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