Abstract

http://ssrn.com/abstract=1945622
 


 



Predicting Recessions: A New Approach for Identifying Leading Indicators and Forecast Combinations


Chikako Baba


International Monetary Fund (IMF)

Turgut Kisinbay


International Monetary Fund (IMF)

October 2011

IMF Working Paper No. 11/235

Abstract:     
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.

Number of Pages in PDF File: 31

Keywords: Business cycles, Economic forecasting, Economic indicators, Economic recession, Forecasting models, United States

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Date posted: October 18, 2011  

Suggested Citation

Baba, Chikako and Kisinbay, Turgut, Predicting Recessions: A New Approach for Identifying Leading Indicators and Forecast Combinations (October 2011). IMF Working Papers, Vol. , pp. 1-31, 2011. Available at SSRN: http://ssrn.com/abstract=1945622

Contact Information

Chikako Baba
International Monetary Fund (IMF) ( email )
700 19th Street, N.W.
Washington, DC 20431
United States
Turgut Kisinbay
International Monetary Fund (IMF) ( email )
700 19th Street, N.W.
Washington, DC 20431
United States
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