Forecasting National Recessions Using State Level Data

Federal Reserve Bank of St. Louis Working Paper No. 2012-013B

33 Pages Posted: 13 Jun 2012 Last revised: 16 Nov 2013

See all articles by Michael Owyang

Michael Owyang

Federal Reserve Bank of St. Louis - Research Division

Jeremy Piger

University of Oregon - Department of Economics

Howard J. Wall

Lindenwood University - Center for Economics and the Environment

Date Written: November 8, 2013

Abstract

A large literature studies the information contained in national-level economic indicators, such as financial and aggregate economic activity variables, for forecasting and nowcasting U.S. business cycle phases (expansions and recessions.) In this paper, we investigate whether there is additional information useful for identifying business cycle phases contained in subnational measures of economic activity. Using a probit model to forecast the NBER expansion and recession classification, we assess the incremental information content of state-level employment growth over a commonly used set of national-level predictors. As state-level data adds a large number of predictors to the model, we employ a Bayesian model averaging procedure to construct forecasts. Based on a variety of forecast evaluation metrics, we find that including state-level employment growth substantially improves nowcasts and very short-horizon forecasts of the business cycle phase. The gains in forecast accuracy are concentrated during months of national recession.

Keywords: turning points, probit, covariate selection

JEL Classification: C52, C53, E32, E37

Suggested Citation

Owyang, Michael T. and Piger, Jeremy M. and Wall, Howard J., Forecasting National Recessions Using State Level Data (November 8, 2013). Federal Reserve Bank of St. Louis Working Paper No. 2012-013B, Available at SSRN: https://ssrn.com/abstract=2083869 or http://dx.doi.org/10.2139/ssrn.2083869

Michael T. Owyang (Contact Author)

Federal Reserve Bank of St. Louis - Research Division ( email )

411 Locust St
Saint Louis, MO 63011
United States

Jeremy M. Piger

University of Oregon - Department of Economics ( email )

Eugene, OR 97403
United States

Howard J. Wall

Lindenwood University - Center for Economics and the Environment ( email )

209 S. Kingshighway
St. Charles, MO 63301
United States

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