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

53 Pages Posted: 17 Jul 2000 Last revised: 14 Sep 2022

See all articles by Arturo Estrella

Arturo Estrella

Rensselaer Polytechnic Institute

Frederic S. Mishkin

Columbia University - Columbia Business School, Finance; 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

Arturo Estrella

Rensselaer Polytechnic Institute ( email )

110 8th Street
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United States

Frederic S. Mishkin (Contact Author)

Columbia University - Columbia Business School, Finance ( email )

3022 Broadway
New York, NY 10027
United States

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
United States