Using econometric models to predict recessions
Last Updated: 11/04/91
Since the focus of this article is on how, and how well, econometric models forecast recessions, I begin by defining a recession. A statistical model requires a precise definition, and, as we will see, different definitions lead to different econometric approaches. After I describe these econometric methods, I evaluate the recent forecasting performance of one econometric method: the NBER's Experimental Recession Index, which I developed jointly with James Stock of Harvard University. It turns out that this index did not perform well over the current recession. Unraveling the reasons for its poor performance says much about the causes of the current recession.