Monash University
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Predicting the Probability of a Recession With Nonlinear Autoregressive Leading Indicator Models

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journal contribution
posted on 2017-06-08, 02:28 authored by Anderson, Heather M., Vahid, Farshid
We develop nonlinear leading indicator models for GDP growth, with the interest rate spread and growth in M2 as leading indicators. Since policy makers are typically interested in whether or not a recession is imminent, we evaluate these models according to their ability to predict the probability of a recession. Using data for the United States, we find that conditional on the spread, the marginal contribution of M2 growth in predicting recessions is negligible.


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Department of Econometrics and Business Statistics

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