Abstract
Quantifying the probability of U.S. recessions has become increasingly important since August 2007. In a data-rich environment, this paper is the first to apply a Probit model to common factors extracted from a large set of explanatory variables to model and forecast recession probability. The results show the advantages of the proposed approach over many existing models. Simulated real-time analysis captures all recessions since 1980. The proposed model also detects a significant jump in the next six-month recession probability based on data up to November 2007, one year before the formal declaration of the recent recession by the NBER.
Original language | English |
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Pages (from-to) | 651-672 |
Number of pages | 22 |
Journal | Canadian Journal of Economics |
Volume | 44 |
Issue number | 2 |
DOIs | |
Publication status | Published - 1 May 2011 |
ASJC Scopus subject areas
- Economics and Econometrics