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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
Affiliation:
Monash University
Farshid Vahid
Affiliation:
Monash University
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Abstract

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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.

Type
Research Article
Copyright
© 2001 Cambridge University Press