Forecasting US Recessions: The Role of Sentiment

46 Pages Posted: 22 Feb 2013 Last revised: 15 Sep 2014

See all articles by Charlotte Christiansen

Charlotte Christiansen

Aarhus University - CREATES

Jonas N. Eriksen

Aarhus University and CREATES

Stig Vinther Møller

Aarhus University - CREATES

Date Written: May 2, 2013

Abstract

We study the role of sentiment variables as predictors for US recessions. We combine sentiment variables with either classical recession predictors or common factors based on a large panel of macroeconomic and financial variables. Sentiment variables hold vast predictive power for US recessions in excess of both the classical recession predictors and the common factors. The strong importance of the sentiment variables is documented both in-sample and out-of-sample.

Keywords: business cycles, forecasting, factor analysis, probit model, sentiment variables

JEL Classification: C22, C25, E32, E37, G17

Suggested Citation

Christiansen, Charlotte and Eriksen, Jonas Nygaard and Møller, Stig Vinther, Forecasting US Recessions: The Role of Sentiment (May 2, 2013). Available at SSRN: https://ssrn.com/abstract=2217403 or http://dx.doi.org/10.2139/ssrn.2217403

Charlotte Christiansen (Contact Author)

Aarhus University - CREATES ( email )

Fuglesangs Alle 4
Aarhus V, DK 8210
Denmark

Jonas Nygaard Eriksen

Aarhus University and CREATES ( email )

Fuglesangs Alle 4
Aarhus V, 8210
Denmark

Stig Vinther Møller

Aarhus University - CREATES ( email )

Nordre Ringgade 1
Aarhus, DK-8000
Denmark

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