Predicting a Recession: Evidence from the Yield Curve in the Presence of Structural Breaks

University of California, Riverside

9 Pages Posted: 19 May 2001

See all articles by Marcelle Chauvet

Marcelle Chauvet

University of California Riverside

Simon Potter

Federal Reserve Bank of New York

Date Written: April 2001

Abstract

A probit model is used to examine the stability of the predictive content of the term structure in forecasting U.S. recessions. In particular, we compare forecasts of a recession under different assumptions regarding the presence of a structural break. We find strong evidence of the existence of a structural break in the U.S. economy, but there is considerable uncertainty about its exact location. Further, recession predictions - including for the year 2001 - are very sensitive to the location of breakpoints.

Keywords: Recession Forecast, Yield Curve, Structural Breaks, Bayesian, Classical Methods

JEL Classification: E52, C53

Suggested Citation

Chauvet, Marcelle and Potter, Simon, Predicting a Recession: Evidence from the Yield Curve in the Presence of Structural Breaks (April 2001). University of California, Riverside. Available at SSRN: https://ssrn.com/abstract=269494 or http://dx.doi.org/10.2139/ssrn.269494

Marcelle Chauvet (Contact Author)

University of California Riverside ( email )

900 University Avenue
4136 Sproul Hall
Riverside, CA 92521
United States
(951) 827-1587 (Phone)

HOME PAGE: http://https://sites.google.com/site/marcellechauvet/

Simon Potter

Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States
212-720-6309 (Phone)
212-720-1844 (Fax)

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