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- Predicting recessions and expansions is notoriously difficult due to the irregular pattern of the business cycle. A single quarter of economic data can be too short to predict a trend, although this was not the case during the initial months of the COVID-19 pandemic.
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Sep 26, 2023 · How well can economists predict recessions? To answer this question, we need to distinguish between two properties of a good forecast: accuracy and precision. A forecast is accurate if it is, on average, correct.
In this article, I review indicators that have proven useful in predicting recessions. The baseline indicator that I examine is the interest rate spread of long-term government bonds over short-term government bonds, which is commonly referred to as the yield curve.
This makes economic sense because output and income are higher in expansions. Second, hours worked are strongly procyclical, while unemployment shows the opposite pattern. In contrast, labor productivity is only moderately procyclical, and real wages are nearly acyclical.
- Thorsten Drautzburg
- 2019
Feb 3, 2020 · Recessions are difficult to predict, in part because they occur rarely, but also because the factors that drive the economy into a recession most likely differ across episodes. As a consequence, a factor that may drive one recession may fare poorly in predicting other downturns.
Jun 28, 2022 · Predicting a recession is not easy. However, indicators such as the yield curve can help economists gauge one’s probability. In this Ask the Expert, we explain what the yield curve is and what its inversion means for the economy.
Most economists view business cycle fluctuations—contractions and expansions in economic output—as being driven by random forces—unforeseen shocks or mistakes, as Bernstein writes. As I will show, a model in which purely random events interact with economic forces can resemble U.S. business cycles.
Nov 14, 2023 · Predicting recessions is vital for decision-makers, as economic policies and economic agents react differently during recessions than during expansions, all else equal. Furthermore, deep recessions may require larger policy stimulus than mild recessions.
