Report on US Recession Probabilities
Dr. Cem C
¸ akmaklı
June 2014
In this report, we publish our recession probability estimates and forecasts for
the US economy obtained using the methodology in C
¸ akmaklı et al. (2013),
as described below. This report is updated every month, shortly after the
release of the Conference Board’s Coincindent Economic Index (CEI) and
Leading Economic Index (LEI).
The CEI increased 0.3 percent in May to 109.0 (2004 = 100), following a
0.2 percent increase in April, and a 0.4 percent increase in March. The LEI
increased 0.5 percent in May to 101.7 (2004 = 100), following a 0.3 percent
increase in April, and a 1.0 percent increase in March.
The recession probabilities are obtained from a three-regime Markov-Switching
model for monthly growth rates for the CEI and LEI. The model assumes
that the two variables share the same cycle, where the LEI leads the CEI with
lead times at different regimes. These lead times are allowed to be different.
The models therefore produce both a ’coincident’ and a ’leading’ probabilities of regimes. The estimated regimes can be classified as ’expansion’, ’mild
recession’ and ’severe recession’. We obtain the recession probabilities as the
sum of the probabilities of mild and severe recessions.
1
Figure 1: Recession probabilities for the for CEI (top) and LEI (bottom)
NBER Recession dates
CEI: Recession probabilities
CEI: Severe recession probabilities
1.0
0.8
0.6
0.4
0.2
0.0
60
62
64
66
68
70
72
74
NBER Recession dates
76
78
80
82
84
86
88
LEI: Recession probabilities
90
92
94
96
98
00
02
04
06
08
10
12
14
04
06
08
10
12
14
LEI: Severe recession probabilities
1.0
0.8
0.6
0.4
0.2
0.0
60
62
64
66
68
70
72
74
76
78
80
82
84
86
88
90
92
94
96
98
00
02
Figure 1 shows coincident and leading recession probabilities since February
1960. These are based on the CEI and LEI vintages released on June 19th.
The shaded areas are the recession periods as determined by the NBER. Both
the coincident recession probability and the leading recession probability remained constant at 0.00 percent. Predictions of the recession probabilities
for June, July and August 2014 is 0.02, 0.04 and 0.05, respectively. Our
findings suggest that the negative US GDP growth of −0.4 in the first quarter of 2014 is a temporary shock with only shortlasting effect. Prediction of
recession probabilities close to 0 indicates that the current expansion is likely
to continue in the foreseeable future without any interruption.
For a clearer picture, Figure 2 shows recession probability estimates over
the period from January 2000 until May 2014.
2
Figure 2: Recession probabilities for the US economy after 2000
NBER Recession dates
CEI: Recession probabilities
CEI: Severe recession probabilities
1.0
0.8
0.6
0.4
0.2
0.0
2000
2001
2002
2003
2004
2005
2006
2007
3
2008
2009
2010
2011
2012
2013
2014
References
C
¸ akmaklı C, Paap R, Van Dijk D. 2013. Measuring and predicting heterogeneous recessions. Journal of Economic Dynamics and Control 37:
2195–2216.
4
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Report on US Recession Probabilities