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The “probability of recession”: Evaluating probabilistic and non-probabilistic forecasts from probit models of U.S. recessions

Authors
Publisher
Elsevier B.V.
Volume
121
Issue
2
Identifiers
DOI: 10.1016/j.econlet.2013.09.002
Keywords
  • Recession Forecast
  • Forecast Evaluation
  • Calibration

Abstract

Highlights • Probit models estimate probability of recession based on slope of the yield curve. • Good at yes/no recession forecasts based on exceeding a threshold probability. • In summer ’06, most models considered issued a recession forecast for summer ’07. • Poor calibration: when estimated probability is 40%, 75% of obs. are in recessions. • Poor calibration makes probit output a bad guide to “probability of recession”.

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