Do Leading Indicators Forecast U.S. Recessions? A Nonlinear Re-Evaluation Using Historical Data

28 Pages Posted: 24 Jul 2017

See all articles by Vasilios Plakandaras

Vasilios Plakandaras

Democritus University of Thrace

Juncal Cunado

University of Navarra - Faculty of Economics

Rangan Gupta

University of Pretoria - Department of Economics

Mark E. Wohar

University of Nebraska at Omaha

Date Written: June 15, 2017

Abstract

This paper analyses to what extent a selection of leading indicators is able to forecast U.S. recessions, by means of both dynamic probit models and Support Vector Machine (SVM) models, using monthly data from January 1871 to June 2016. The results suggest that the probit models predict U.S. recession periods more accurately than SVM models up to six months ahead, while the SVM models are more accurate over longer horizons. Furthermore, SVM models appear to distinguish between recessions and tranquil periods better than probit models do. Finally, the most accurate forecasting models are those that include oil, stock returns and the term spread as leading indicators.

Keywords: Dynamic Probit Models, Support Vector Machines, U.S. Recessions

JEL Classification: C53, E32, E37

Suggested Citation

Plakandaras, Vasilios and Cunado, Juncal and Gupta, Rangan and Wohar, Mark E., Do Leading Indicators Forecast U.S. Recessions? A Nonlinear Re-Evaluation Using Historical Data (June 15, 2017). Available at SSRN: https://ssrn.com/abstract=3006460 or http://dx.doi.org/10.2139/ssrn.3006460

Vasilios Plakandaras (Contact Author)

Democritus University of Thrace ( email )

University Campus
Komotini, 69100
Greece

Juncal Cunado

University of Navarra - Faculty of Economics ( email )

Campus Universitario
Pamplona, Navarra 31009
Spain

Rangan Gupta

University of Pretoria - Department of Economics ( email )

Lynnwood Road
Hillcrest
Pretoria, 0002
South Africa

Mark E. Wohar

University of Nebraska at Omaha ( email )

Department of Economics
6708 Pine Street MH 332S
Omaha, NE 68182
United States
402-554-3712 (Phone)
402-554-2853 (Fax)

HOME PAGE: http://cba.unomaha.edu/faculty/mwohar/WEB/homepage.html

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