Do Asset Price Drops Foreshadow Recessions?
October 2, 2013
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Summary
This paper examines the usefulness of asset prices in predicting recessions in the G-7 countries. It finds that asset price drops are significantly associated with the beginning of a recession in these countries. In particular, the marginal effect of an equity/house price drop on the likelihood of a new recession can be substantial. Equity price drops are, however, larger and are more frequent than house price drops, making them on average more helpful as recession predictors. These findings are robust to the inclusion of the term-spread, uncertainty, and oil prices. Lastly, there is no evidence of significant bias resulting from the rarity of recession starts.
Subject: Asset prices, Financial institutions, Financial markets, Housing prices, Oil prices, Prices, Stock markets, Stocks
Keywords: asset price, asset price collapse, Asset prices, Binary dependent variable models, Business cycles, equity price drop, Financial markets, frequency distribution, Global, growth model, house price change, Housing prices, lag terms, Macroeconomic forecasting, Oil Prices, price growth, price movement, price volatility, Stock markets, Stocks, term spread, Uncertainty, WP
Pages:
35
Volume:
2013
DOI:
Issue:
203
Series:
Working Paper No. 2013/203
Stock No:
WPIEA2013203
ISBN:
9781484353363
ISSN:
1018-5941
