Predicting Recessions

77 Pages Posted: 19 Oct 2022 Last revised: 17 Nov 2022

See all articles by Rajkamal Iyer

Rajkamal Iyer

Massachusetts Institute of Technology (MIT) - Sloan School of Management

Shohini Kundu

University of California, Los Angeles (UCLA) - Anderson School of Management

Nikos Paltalidis

Durham University Business School

Date Written: October 14, 2022

Abstract

This paper predicts recessions using the dispersion of deposit rates offered by banks on insured deposits. An increase in the dispersion of deposit rates can accurately predict recessions over long time horizons at the county, state, and national levels. We find that the growth of deposits, particularly uninsured deposits of riskier banks, slows down at the onset of a downturn, regardless of whether the downturn was preceded by a credit boom. In turn, riskier banks increase their deposit rates to attract more funding to support their balance sheet. The resulting increase in the dispersion of deposit rates predicts an impending economic downturn.

Suggested Citation

Iyer, Rajkamal and Kundu, Shohini and Paltalidis, Nikos, Predicting Recessions (October 14, 2022). Available at SSRN: https://ssrn.com/abstract=4247519 or http://dx.doi.org/10.2139/ssrn.4247519

Rajkamal Iyer

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

100 Main Street
E62-416
Cambridge, MA 02142
United States

Shohini Kundu (Contact Author)

University of California, Los Angeles (UCLA) - Anderson School of Management ( email )

110 Westwood Plaza
Los Angeles, CA 90095-1481
United States

Nikos Paltalidis

Durham University Business School ( email )

Mill Hill Lane
Durham, Durham DH1 3LB
United Kingdom

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