Premium
Reassessing the Relative Power of the Yield Spread in Forecasting Recessions
Author(s) -
Croushore Dean,
Marsten Katherine
Publication year - 2015
Publication title -
journal of applied econometrics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 2.878
H-Index - 99
eISSN - 1099-1255
pISSN - 0883-7252
DOI - 10.1002/jae.2485
Subject(s) - recession , probit model , econometrics , replicate , robustness (evolution) , economics , sample (material) , survey of professional forecasters , yield (engineering) , sample size determination , value (mathematics) , probit , statistics , mathematics , macroeconomics , monetary policy , biochemistry , chemistry , materials science , chromatography , gene , metallurgy
Summary In this paper, we replicate the main results of previous research showing that the use of the yield spread in a probit model can predict recessions better than the Survey of Professional Forecasters. We investigate the robustness of their results in several ways: extending the sample to include the 2007‐09 recession, changing the starting date of the sample, using rolling windows of data instead of just an expanding sample, and using alternative measures of the “actual” value of real output. Our results show that the Rudebusch‐Williams findings are robust in all dimensions. Copyright © 2015 John Wiley & Sons, Ltd.