What Predicts U.S. Recessions?

34 Pages Posted: 22 Jul 2019

See all articles by Weiling Liu

Weiling Liu

Northeastern University

Emanuel Moench

Deutsche Bundesbank; Goethe University Frankfurt - Department of Money and Macroeconomics

Date Written: September 1, 2014


We reassess the predictability of U.S. recessions at horizons from three months to two years ahead for a large number of previously proposed leading-indicator variables. We employ an efficient probit estimator for partially missing data and assess relative model performance based on the receiver operating characteristic (ROC) curve. While the Treasury term spread has the highest predictive power at horizons four to six quarters ahead, adding lagged observations of the term spread significantly improves the predictability of recessions at shorter horizons. Moreover, balances in broker-dealer margin accounts significantly improve the precision of recession predictions, especially at horizons further out than one year.

Keywords: recession predictability, ROC, term spread, leading indicators, efficient probit

JEL Classification: C52, C53, E32, E37

Suggested Citation

Liu, Weiling and Moench, Emanuel, What Predicts U.S. Recessions? (September 1, 2014). FRB of New York Staff Report No. 691, Available at SSRN: https://ssrn.com/abstract=2495083 or http://dx.doi.org/10.2139/ssrn.2495083

Weiling Liu

Northeastern University ( email )

360 Huntington Ave.
Boston, MA 02115
United States
2157898931 (Phone)
02115 (Fax)

HOME PAGE: http://https://sites.google.com/view/weilingliu/

Emanuel Moench (Contact Author)

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
+49 69 95662312 (Phone)

HOME PAGE: http://https://www.bundesbank.de/en/emanuel-moench

Goethe University Frankfurt - Department of Money and Macroeconomics ( email )


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