Predicting Recessions: A New Approach for Identifying Leading Indicators and Forecast Combinations
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Summary:
This study proposes a data-based algorithm to select a subset of indicators from a large data set with a focus on forecasting recessions. The algorithm selects leading indicators of recessions based on the forecast encompassing principle and combines the forecasts. An application to U.S. data shows that forecasts obtained from the algorithm are consistently among the best in a large comparative forecasting exercise at various forecasting horizons. In addition, the selected indicators are reasonable and consistent with the standard leading indicators followed by many observers of business cycles. The suggested algorithm has several advantages, including wide applicability and objective variable selection.
Series:
Working Paper No. 2011/235
Subject:
Business cycles Capacity utilization Cyclical indicators Economic growth Housing Labor Labor markets National accounts Production
English
Publication Date:
October 1, 2011
ISBN/ISSN:
9781463922016/1018-5941
Stock No:
WPIEA2011235
Pages:
30
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