NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Predicting U.S. Recessions: Financial Variables as Leading Indicators

Arturo Estrella, Frederic S. Mishkin

NBER Working Paper No. 5379 (Also Reprint No. r2230)
Issued in December 1995
NBER Program(s):   EFG   ME

This article examines the performance of various financial variables as predictors of subsequent U.S. recessions. Series such as interest rates and spreads, stock prices, currencies, and monetary aggregates are evaluated singly and in comparison with other financial and non-financial indicators. The analysis focuses on out-of-sample performance from 1 to 8 quarters ahead. Results show that stock prices are useful with 1-2 quarter horizons, as are some well-known macroeconomic indicators. Beyond 2 quarters, the slope of the yield curve emerges as the clear choice, and typically performs better by itself out of sample than in conjunction with other variables.

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Document Object Identifier (DOI): 10.3386/w5379

Published: Review of Economics and Statistics, vol.80, no.1, pp. 45-61, February 1998.

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