Those Unpredictable Recessions

Abstract:     
Contemporary global economic life is measured in days and hours, but most common economic indicators have inevitable lags of months and sometimes quarters (GDP). Moreover, the real-time picture of economic dynamics may differ in some sense from the same picture in its historical perspective, because all fluctuations receive their proper weights only in the context of the whole. Therefore, it’s important to understand whether the existing indicators are really capable of providing important information for decision-makers. In other words, could they be useful in real-time? Why then was it so difficult for the experts to recognize the turning points in real time? What hampers this ability to recognize? Can a turning points’ forecast be entirely objective? The paper answers these questions in terms of three cyclical indicators for the USA (LEI by the Conference Board, CLI by OECD and PMI by ISM) during the last 2008–2009 recession.

Number of Pages in PDF File: 24

Keywords: Business cycle, leading indicators, turning points, biased forecasts

JEL Classification: E32 – Business Fluctuations, Cycles, E17 – Forecasting and Simulation: Models and Applications

working papers series