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PREDICTING THE PROBABILITY OF A RECESSION WITH NONLINEAR AUTOREGRESSIVE LEADING-INDICATOR MODELS
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2001
Year
M2 GrowthForecasting MethodologyEngineeringMacroeconomic ForecastingEconomic FluctuationEconomic GrowthMonetary PolicyNonlinear Leading-indicator ModelsEconomic ForecastingEconomic AnalysisMacroeconomic ModelStatisticsEconomicsPredictive AnalyticsEconomic TrendForecastingFinanceMacroeconomicsBusinessEconometricsGdp GrowthFinancial Crisis
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.