Since most of my lecture notes have migrated behind a gate (software called Canvas, used on many campuses), I thought I would share some teaching material that some Econbrowser readers might find of interest.<\/p>\n
First, recession vs. output gap (Econ 442 Lecture 9<\/a>):<\/p>\n Figure 1:<\/strong> Quarter on Quarter growth rate of real GDP (blue), Year on Year (tan), both calculated as log differences. NBER defined peak-to-trough recession dates shaded gray. Source: BEA, NBER, and author\u2019s calculations.<\/em><\/p>\n Note there is no NBER-defined recession in 2022H1, despite two consecutive quarters of negative GDP growth. In contrast, there is a NBER defined recession in 2001, despite the absence of two consecutive quarters of negative growth in the latest vintage of GDP (when was it that there were? See here<\/a>.). Hamilton\u2019s Markov Switching model of recessions did not indicate a recession then<\/a>, nor did the real-time Sahm rule.<\/p>\n I distinguish between an output gap and recession by referring to this graph:<\/p>\n Figure 2:<\/strong> Output gap, from CBO (bold black), from Fleischman\/Roberts-FRB (blue), from HP filter estimated over 1947-2023 (green), and from Hamilton filter estimated over 1967-2023 (red). NBER defined peak-to-trough recession dates shaded gray. Source: BEA, CBO February 2024, Atlanta Fed Taylor rule utility February 2024<\/a>, NBER, and author\u2019s calculations.<\/em><\/p>\n Note that for the Euro area, CEPR\u2019s BCDC<\/a> noted two consecutive quarters of negative growth in 2023 GDP, but has also not declared a recession, given increases in employment and hours worked.<\/p>\n What about recession prediction? That\u2019s discussed in this handout (Recession Early Warning Systems<\/a>). Given the continued yield curve inversions, it\u2019s not surprising that estimated recession probabilities are high. On the other hand, my research with Ferrara<\/a>, Ahmed<\/a>, Kucko<\/a> and Chatelais<\/a> and Stalla-Bourdillon<\/a> suggests other predictors. Those provide alternative estimates of recession probabilities. Below I examine the impact of the foreign term spread as well as the debt service ratio.<\/p>\n Figure 3:<\/strong> Probability of recession from term spread and short rate (tan), and term spread and short rate, debt-service ratio, foreign term spread (blue). NBER defined peak-to-trough recession dates shaded gray. Source: NBER, and author\u2019s calculations.<\/em><\/p>\n![\"\"](\"https:\/\/econbrowser.com\/wp-content\/uploads\/2024\/02\/recessionpix.png\")
<\/a><\/p>\n![\"\"](\"https:\/\/econbrowser.com\/wp-content\/uploads\/2024\/02\/outputgaps_23q4.png\")
<\/a><\/p>\n![\"\"](\"https:\/\/econbrowser.com\/wp-content\/uploads\/2024\/01\/recprob_jan24.png\")
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