Predicting recessions with interest rate spreads: a multicountry regime-switching analysis

  • This study uses Markov-switching models to evaluate the informational content of the term structure as a predictor of recessions in eight OECD countries. The empirical results suggest that for all countries the term spread is sensibly modelled as a two-state regime-switching process. Moreover, our simple univariate model turns out to be a filter that transforms accurately term spread changes into turning point predictions. The term structure is confirmed to be a reliable recession indicator. However, the results of probit estimations show that the markov-switching filter does not significantly improve the forecasting ability of the spread.

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Author:Ralf Ahrens
Parent Title (German):Center for Financial Studies (Frankfurt am Main): CFS working paper series ; No. 1999,15
Series (Serial Number):CFS working paper series (1999, 15)
Document Type:Working Paper
Year of Completion:1999
Year of first Publication:1999
Publishing Institution:Universitätsbibliothek Johann Christian Senckenberg
Release Date:2005/06/13
Tag:economic fluctuations; forecasting; regime-switching; term structure
GND Keyword:Rezession; Zinsfuß; OECD; Mitgliedsstaaten; Prognose
Institutes:Wissenschaftliche Zentren und koordinierte Programme / Center for Financial Studies (CFS)
Dewey Decimal Classification:3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft
JEL-Classification:C Mathematical and Quantitative Methods / C2 Single Equation Models; Single Variables / C22 Time-Series Models; Dynamic Quantile Regressions (Updated!)
C Mathematical and Quantitative Methods / C5 Econometric Modeling / C53 Forecasting and Other Model Applications
Licence (German):License LogoDeutsches Urheberrecht