Predicting U.S. Recessions: Financial Variables as Leading Indicators

53 Pages Posted: 17 Jul 2000 Last revised: 24 Sep 2010

See all articles by Arturo Estrella

Arturo Estrella

Frederic S. Mishkin

Columbia Business School - Finance and Economics; National Bureau of Economic Research (NBER)

Date Written: December 1995

Abstract

This article examines the performance of various financial variables as predictors of subsequent U.S. recessions. Series such as interest rates and spreads, stock prices, currencies, and monetary aggregates are evaluated singly and in comparison with other financial and non-financial indicators. The analysis focuses on out-of-sample performance from 1 to 8 quarters ahead. Results show that stock prices are useful with 1-2 quarter horizons, as are some well-known macroeconomic indicators. Beyond 2 quarters, the slope of the yield curve emerges as the clear choice, and typically performs better by itself out of sample than in conjunction with other variables.

Suggested Citation

Estrella, Arturo and Mishkin, Frederic S., Predicting U.S. Recessions: Financial Variables as Leading Indicators (December 1995). NBER Working Paper No. w5379, Available at SSRN: https://ssrn.com/abstract=225441

Frederic S. Mishkin (Contact Author)

Columbia Business School - Finance and Economics ( email )

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National Bureau of Economic Research (NBER)

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