151 research outputs found
Regime-dependent recession forecasts and the 2001 recession
Business recessions are notoriously hard to predict accurately, hence the quip that economists have predicted eight of the last five recessions. This article derives a six-month-ahead recession signal that reduces the number of false signals outside of recession, without impairing the ability to signal the recessions that occur. In terms of predicting the 1990-91 and 2001 recessions out of sample, the new recession signal, like other signals, largely misses the 1990-91 recession with its six-month-ahead forecasts. In contrast, a recession onset in April or May 2001 was predicted six months ahead of the 2001 recession, which is close to the actual turning point of March 2001.Recessions ; Business cycles ; Forecasting
Hypothesis testing with near-unit roots: the case of long-run purchasing-power parity
Purchasing power
The monetary policy innovation paradox in VARs: a "discrete" explanation
Monetary policy shocks derived from VARs often suggest that monetary policymakers regularly react to an unexpected increase that they induced in the federal funds rate with additional increases. This puzzling pattern can be called the “policy innovation paradox” because there is no obvious explanation for such a pattern. This article shows that the policy innovation paradox is most likely an artifact of failing to account for the discreteness of changes that policymakers make to the target federal funds rate. Mis-specified VARs that fail to account for discrete target changes imply the policy innovation paradox, whereas a model that uses information from discrete policy changes does not.Monetary policy ; Federal funds rate ; Vector autoregression
Using cyclical regimes of output growth to predict jobless recoveries
Gaps between output and employment growth are often attributed to transitional phases by which the economy adjusts to shifts in the rate of trend productivity growth. Nevertheless, cyclical factors can also drive a wedge between output and employment growth. This article shows that one measure of cyclical dynamics-the expected output loss associated with a recession-helps predict the gap between output and employment growth in the coming four quarters. This measure of the output loss associated with a recession can take unexpected twists and turns as the recovery unfolds. The empirical results in this paper support the proposition that a weaker-than-expected rebound in the economy can partially mute employment growth for a time relative to output growth.Employment (Economic theory)
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