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PREDICTING THE PROBABILITY OF A RECESSION WITH NONLINEAR AUTOREGRESSIVE LEADING-INDICATOR MODELS

Published online by Cambridge University Press:  31 March 2003

Heather M. Anderson  and
Farshid Vahid
Heather M. Anderson
Affiliation:
Monash University
Farshid Vahid
Affiliation:
Monash University
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Abstract

We develop nonlinear leading-indicator models for GDP growth, with the interest-rate spread and growth in M2 as leading indicators. Since policy makers typically are interested in whether a recession is imminent, we evaluate these models according to their ability to predict the probability of a recession. Using data for the United States, we find that conditional on the spread, the marginal contribution of M2 growth in predicting recessions is negligible.

Keywords

Event ProbabilitiesLeading IndicatorsNonlinear Models
Type
Research Article
Information
Macroeconomic Dynamics , Volume 5 , Issue 4 , September 2001 , pp. 482 - 505
Copyright
© 2001 Cambridge University Press

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