Year: 2014
Type: article
Abstract: We use probit recession forecasting models to assess the ability of economic policy uncertainty indexes developed by Baker et al. (2013) to predict future US recessions. The model specifications include policy indexes on their own, and in combination with financial variables, such as interest rate spreads, stock returns and stock market volatility. Both in-sample and out-of-sample analysis suggests that the policy uncertainty indexes are statistically and economically significant in forecasting recessions at the horizons beyond five quarters. The index based on newspaper reports emerges as the best predictor, outperforming the term spread at the longer forecast horizons.
Source: Economics Letters
Authors: Lilia Karnizova, Jiaxiong (Chris) Li
Institution: University of Ottawa
Language: English
Subfield: Economics and Econometrics
Domain: Social Sciences
Open Access status: hybrid
Estimated APC paid: $3,030
OpenAlex ID: W2062012172