Estimating Probabilities of Recession in Real Time Using GDP and GDI

54 Pages Posted: 25 Apr 2007  

Jeremy Nalewaik

Board of Governors of the Federal Reserve System

Date Written: March 2007

Abstract

This work estimates Markov switching models on real time data and shows that the growth rate of gross domestic income (GDI), deflated by the GDP deflator, has done a better job recognizing the start of recessions than has the growth rate of real GDP. This result suggests that placing an increased focus on GDI may be useful in assessing the current state of the economy. In addition, the paper shows that the definition of a low-growth phase in the Markov switching models has changed over the past couple of decades. The models increasingly define this phase as an extended period of around zero rather than negative growth, diverging somewhat from the traditional definition of a recession.

Keywords: labor force, aging, labor supply, labor force participation

JEL Classification: E32

Suggested Citation

Nalewaik, Jeremy, Estimating Probabilities of Recession in Real Time Using GDP and GDI (March 2007). FEDS Working Paper No. 2007-07. Available at SSRN: https://ssrn.com/abstract=982578 or http://dx.doi.org/10.2139/ssrn.982578

Jeremy John Nalewaik (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

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