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Forecasting recessions: can we do better on MARS?

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  • Peter Sephton

Abstract

A number of recent articles have examined the ability of financial variables to predict recessions. In this article, Peter Sephton extends the literature by considering a non-linear, nonparametric approach to predicting the probability of recession using multivariate adaptive regression splines (MARS). The results suggest that this data-intensive approach to modeling is not a panacea for recession forecasting. Although it does well explaining the data within the sample, its out-of-sample forecasts do not improve upon the benchmark probit specification.

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  • Peter Sephton, 2001. "Forecasting recessions: can we do better on MARS?," Review, Federal Reserve Bank of St. Louis, vol. 83(Mar), pages 39-49.
    • Handle: RePEc:fip:fedlrv:y:2001:i:mar:p:39-49:n:v.83no.2
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    11. Zaher Mundher Yaseen & Sujay Raghavendra Naganna & Zulfaqar Sa’adi & Pijush Samui & Mohammad Ali Ghorbani & Sinan Q. Salih & Shamsuddin Shahid, 2020. "Hourly River Flow Forecasting: Application of Emotional Neural Network Versus Multiple Machine Learning Paradigms," Water Resources Management: An International Journal, Published for the European Water Resources Association (EWRA), Springer;European Water Resources Association (EWRA), vol. 34(3), pages 1075-1091, February.
    12. Deo, Ravinesh C. & Şahin, Mehmet & Adamowski, Jan F. & Mi, Jianchun, 2019. "Universally deployable extreme learning machines integrated with remotely sensed MODIS satellite predictors over Australia to forecast global solar radiation: A new approach," Renewable and Sustainable Energy Reviews, Elsevier, vol. 104(C), pages 235-261.
    13. Pons Novell, J., 2002. "Ciclo de la economía española y contenido informativo de los tipos de interés," Estudios de Economia Aplicada, Estudios de Economia Aplicada, vol. 20, pages 583-598, Diciembre.
    14. David Jamieson Bolder & Yuliya Romanyuk, 2010. "Combining Canadian Interest Rate Forecasts," Palgrave Macmillan Books, in: Arjan B. Berkelaar & Joachim Coche & Ken Nyholm (ed.), Interest Rate Models, Asset Allocation and Quantitative Techniques for Central Banks and Sovereign Wealth Funds, chapter 1, pages 3-30, Palgrave Macmillan.
    15. Serpil Kılıç Depren & Mustafa Tevfik Kartal, 2021. "Prediction on the volume of non‐performing loans in Turkey using multivariate adaptive regression splines approach," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(4), pages 6395-6405, October.
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    18. Fabio Moneta, 2005. "Does the Yield Spread Predict Recessions in the Euro Area?," International Finance, Wiley Blackwell, vol. 8(2), pages 263-301, August.

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    Recessions; Forecasting;

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