Predicting a Recession: Evidence from the Yield Curve in the Presence of Structural Breaks
University of California, Riverside
9 Pages Posted: 19 May 2001
Date Written: April 2001
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: Suggested Citation