IDEAS home Printed from https://ideas.repec.org/a/wly/soecon/v81y2015i4p1025-1039.html
   My bibliography  Save this article

A recession‐and‐state forecasting model

Author

Listed:
  • Rolando F. Peláez

Abstract

The state forecasting model (SFM) developed herein predicts the probability that a recession will begin or end within the next quarter. It is also important to forecast the state, as models prone to false alarms are not useful. The model combines parsimony, predictive accuracy, and ease of estimation using readily available data. No regressor is benchmark‐revised, and only one is seasonally adjusted. The SFM correctly forecasts, out‐of‐sample, the binary state in 163 of 164 quarters for an overall proportion of correct forecasts of 0.994. The results demonstrate the discriminating ability, longevity and striking forecasting ability of the model. A benchmark model based on the newly revised Leading Economic Index of the Conference Board has zero marginal predictive power in the presence the SFM.

Suggested Citation

  • Rolando F. Peláez, 2015. "A recession‐and‐state forecasting model," Southern Economic Journal, John Wiley & Sons, vol. 81(4), pages 1025-1039, April.
    • Handle: RePEc:wly:soecon:v:81:y:2015:i:4:p:1025-1039
    DOI: 10.1002/soej.12060
    as

    Download full text from publisher

    File URL: https://doi.org/10.1002/soej.12060
    Download Restriction: no
    File URL: https://libkey.io/10.1002/soej.12060?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. S. Borağan Aruoba, 2008. "Data Revisions Are Not Well Behaved," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 40(2‐3), pages 319-340, March.
    2. Diebold, Francis X & Mariano, Roberto S, 2002. "Comparing Predictive Accuracy," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(1), pages 134-144, January.
    3. Christina D. Romer & David Romer, 2002. "The evolution of economic understanding and postwar stabilization policy," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 11-78.
    4. Loungani, Prakash, 2001. "How accurate are private sector forecasts? Cross-country evidence from consensus forecasts of output growth," International Journal of Forecasting, Elsevier, vol. 17(3), pages 419-432.
    5. James H. Stock & Mark W. Watson, 2003. "How did leading indicator forecasts perform during the 2001 recession?," Economic Quarterly, Federal Reserve Bank of Richmond, vol. 89(Sum), pages 71-90.
    6. Diebold, Francis X & Rudebusch, Glenn D, 1989. "Scoring the Leading Indicators," The Journal of Business, University of Chicago Press, vol. 62(3), pages 369-391, July.
    7. Geoffrey H. Moore, 1983. "Business Cycles, Inflation, and Forecasting, 2nd edition," NBER Books, National Bureau of Economic Research, Inc, number moor83-1.
    8. Rendigs Fels & C. Elton Hinshaw, 1968. "Forecasting and Recognizing Business Cycle Turning Points," NBER Books, National Bureau of Economic Research, Inc, number fels68-1.
    9. David F. Hendry & Neil R. Ericsson (ed.), 2003. "Understanding Economic Forecasts," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262582422, April.
    10. Geoffrey H. Moore, 1983. "Introductory pages to "Business Cycles, Inflation, and Forecasting, 2nd edition"," NBER Chapters, in: Business Cycles, Inflation, and Forecasting, 2nd edition, pages -25, National Bureau of Economic Research, Inc.
    11. Stephen K. McNees, 1987. "Forecasting cyclical turning points: the record in the past three recessions," New England Economic Review, Federal Reserve Bank of Boston, issue Mar, pages 31-40.
    12. Robert A. Eisenbeis & Daniel F. Waggoner & Tao Zha, 2002. "Evaluating Wall Street Journal survey forecasters: a multivariate approach," FRB Atlanta Working Paper 2002-8, Federal Reserve Bank of Atlanta.
    13. Don Harding & Adrian Pagan, 2010. "Can We Predict Recessions?," NCER Working Paper Series 69, National Centre for Econometric Research.
    14. Granger, C. W. J. & Newbold, Paul, 1986. "Forecasting Economic Time Series," Elsevier Monographs, Elsevier, edition 2, number 9780122951831 edited by Shell, Karl.
    15. Wallis, Kenneth F, 1989. "Macroeconomic Forecasting: A Survey," Economic Journal, Royal Economic Society, vol. 99(394), pages 28-61, March.
    16. Hendry, David F, 1997. "The Econometrics of Macroeconomic Forecasting," Economic Journal, Royal Economic Society, vol. 107(444), pages 1330-1357, September.
    17. Geoffrey H. Moore, 1983. "Appendices to "Business Cycles, Inflation, and Forecasting, 2nd edition"," NBER Chapters, in: Business Cycles, Inflation, and Forecasting, 2nd edition, pages 453-473, National Bureau of Economic Research, Inc.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Peláez, Rolando F., 2015. "Market-timing the business cycle," Review of Financial Economics, Elsevier, vol. 26(C), pages 55-64.
    2. Rolando F. Peláez, 2015. "Market‐timing the business cycle," Review of Financial Economics, John Wiley & Sons, vol. 26(1), pages 55-64, September.
    3. Allan P. Layton, 1994. "Further on the Nature of the Australian Business Cycle," The Economic Record, The Economic Society of Australia, vol. 70(208), pages 12-18, March.
    4. Victor Zarnowitz, 1991. "What is a Business Cycle?," NBER Working Papers 3863, National Bureau of Economic Research, Inc.
    5. Andrew J. Filardo, 1999. "How reliable are recession prediction models?," Economic Review, Federal Reserve Bank of Kansas City, vol. 84(Q II), pages 35-55.
    6. Sergey V. Smirnov & Daria A. Avdeeva, 2016. "Wishful Bias in Predicting Us Recessions: Indirect Evidence," HSE Working papers WP BRP 135/EC/2016, National Research University Higher School of Economics.
    7. Fildes, Robert & Stekler, Herman, 2002. "The state of macroeconomic forecasting," Journal of Macroeconomics, Elsevier, vol. 24(4), pages 435-468, December.
    8. Liang, Kuo-Yuan & Yen, Chen-Hui, 2014. "Dissecting the cycles: An intermarket investigation and its implications to portfolio reallocation," International Review of Economics & Finance, Elsevier, vol. 33(C), pages 39-51.
    9. repec:lan:wpaper:470 is not listed on IDEAS
    10. Bruzda, Joanna, 2019. "Complex analytic wavelets in the measurement of macroeconomic risks," The North American Journal of Economics and Finance, Elsevier, vol. 50(C).
    11. Clements, Michael P. & Harvey, David I., 2011. "Combining probability forecasts," International Journal of Forecasting, Elsevier, vol. 27(2), pages 208-223.
    12. Gregory R. Duffee & Stephen D. Prowse, "undated". "What's Good for GM...? Using Auto Industry Stock Returns to Forecast Business Cycles and Test the Q-Theory of Investment," Finance and Economics Discussion Series 1996-38, Board of Governors of the Federal Reserve System (U.S.), revised 04 Dec 2019.
    13. Massimiliano Marcellino, "undated". "Further Results on MSFE Encompassing," Working Papers 143, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
    14. Ernst. A. Boehm & Geoffrey H. Moore, 1984. "New Economic Indicators for Australia, 1949‐84," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 17(4), pages 34-56, December.
    15. Castilla, Adolfo, 2015. "Proyecto LINK y Econometría de Alta Frecuencia: Las últimas aportaciones econométricas de Lawrence R. Klein /LINK Project and High Frequency Econometrics: Recent Econometric Contributions of Lawrence ," Estudios de Economia Aplicada, Estudios de Economia Aplicada, vol. 33, pages 421-450, Mayo.
    16. Wynne, Mark A. & Balke, Nathan S., 1992. "Are deep recessions followed by strong recoveries?," Economics Letters, Elsevier, vol. 39(2), pages 183-189, June.
    17. Antonello D’Agostino & Domenico Giannone & Michele Lenza & Michele Modugno, 2016. "Nowcasting Business Cycles: A Bayesian Approach to Dynamic Heterogeneous Factor Models," Advances in Econometrics, in: Dynamic Factor Models, volume 35, pages 569-594, Emerald Group Publishing Limited.
    18. Francis X. Diebold & Jose A. Lopez, 1995. "Forecast evaluation and combination," Research Paper 9525, Federal Reserve Bank of New York.
    19. Stephen K. McNees, 1992. "The 1990-91 recession in historical perspective," New England Economic Review, Federal Reserve Bank of Boston, issue Jan, pages 3-22.
    20. Raffaella Giacomini & Barbara Rossi, 2013. "Forecasting in macroeconomics," Chapters, in: Nigar Hashimzade & Michael A. Thornton (ed.), Handbook of Research Methods and Applications in Empirical Macroeconomics, chapter 17, pages 381-408, Edward Elgar Publishing.
    21. Francis X. Diebold & Glenn D. Rudebusch, 2001. "Five questions about business cycles," Economic Review, Federal Reserve Bank of San Francisco, pages 1-15.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wly:soecon:v:81:y:2015:i:4:p:1025-1039. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: https://doi.org/10.1002/(ISSN)2325-8012 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.