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How many times until a coincidence becomes a pattern? The case of yield curve inversions preceding recessions and the magical number 7

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  • Ned Kock
  • Augustine Tarkom

Abstract

Let us say that a coincidence involving two events, where one seems to predict the other, happens a number of times. How many times until it can be considered not only a coincidence, but a statistically significant pattern? We propose a framework to answer this question. Using the framework, we find that the number of times required is 7. We illustrate the practical application of our framework in the context of a very important phenomenon: When the percentage difference between 10-year and 3-month U.S. Treasury yields falls below zero, a U.S. recession appears to occur within the next 18 months.

Suggested Citation

  • Ned Kock & Augustine Tarkom, 2024. "How many times until a coincidence becomes a pattern? The case of yield curve inversions preceding recessions and the magical number 7," Communications in Statistics - Theory and Methods, Taylor & Francis Journals, vol. 53(16), pages 5785-5792, August.
    • Handle: RePEc:taf:lstaxx:v:53:y:2024:i:16:p:5785-5792
    DOI: 10.1080/03610926.2023.2232908
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