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Forecasting National Recessions Using State‐Level Data
Author(s) -
OWYANG MICHAEL T.,
PIGER JEREMY,
WALL HOWARD J.
Publication year - 2015
Publication title -
journal of money, credit and banking
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.763
H-Index - 108
eISSN - 1538-4616
pISSN - 0022-2879
DOI - 10.1111/jmcb.12228
Subject(s) - business cycle , recession , econometrics , probit model , variety (cybernetics) , bayesian probability , consensus forecast , state (computer science) , set (abstract data type) , computer science , economics , finance , macroeconomics , artificial intelligence , algorithm , programming language
We investigate whether there is information useful for identifying U.S. business cycle phases contained in subnational measures of economic activity. Using a probit model to forecast the National Bureau of Economic Research expansion and recession classification, we assess the incremental information content of state‐level employment growth over a commonly used set of national‐level predictors. As state‐level data adds a large number of predictors to the model, we employ a Bayesian model averaging procedure to construct forecasts. Based on a variety of forecast evaluation metrics, we find that including state‐level employment growth substantially improves nowcasts and very short‐horizon forecasts of the business cycle phase. The gains in forecast accuracy are concentrated during months of national recession.