{"id":221923,"date":"2024-04-09T05:26:46","date_gmt":"2024-04-09T05:26:46","guid":{"rendered":"https:\/\/michigandigitalnews.com\/index.php\/2024\/04\/09\/100-years-of-recession-prediction-using-the-term-spread\/"},"modified":"2025-06-25T17:19:01","modified_gmt":"2025-06-25T17:19:01","slug":"100-years-of-recession-prediction-using-the-term-spread","status":"publish","type":"post","link":"https:\/\/michigandigitalnews.com\/index.php\/2024\/04\/09\/100-years-of-recession-prediction-using-the-term-spread\/","title":{"rendered":"100 Years of Recession Prediction Using the Term Spread"},"content":{"rendered":"<p> [ad_1]<br \/>\n<\/p>\n<div id=\"post-51779\">\n\t\t\t\t<!-- .entry-header --><\/p>\n<div class=\"entry-content\">\n<p>It doesn\u2019t always work.<\/p>\n<p><a href=\"https:\/\/econbrowser.com\/wp-content\/uploads\/2024\/04\/longrecessionprob2.png\"><img fetchpriority=\"high\" fetchpriority=\"high\" decoding=\"async\" class=\"alignnone size-full wp-image-51782\" src=\"https:\/\/econbrowser.com\/wp-content\/uploads\/2024\/04\/longrecessionprob2.png\" alt=\"\" width=\"806\" height=\"532\" srcset=\"https:\/\/econbrowser.com\/wp-content\/uploads\/2024\/04\/longrecessionprob2.png 806w, https:\/\/econbrowser.com\/wp-content\/uploads\/2024\/04\/longrecessionprob2-300x198.png 300w, https:\/\/econbrowser.com\/wp-content\/uploads\/2024\/04\/longrecessionprob2-768x507.png 768w, https:\/\/econbrowser.com\/wp-content\/uploads\/2024\/04\/longrecessionprob2-624x412.png 624w\" sizes=\"(max-width: 806px) 100vw, 806px\"\/><\/a><\/p>\n<p><em><strong>Figure 1:<\/strong> Recession probability one year ahead for 10 year-3 month Treasury spread (blue). NBER defined peak-to-trough recession dates shaded gray. LIght green shaded area denotes out-of-sample period. Orange dashed line denotes Fed agreement on rates. Source: NBER, and author\u2019s calculations.\u00a0<\/em><\/p>\n<p>The estimated probit regression:<\/p>\n<p>Pr(<em>rec<\/em>=1) =\u00a0<strong>-0.29 \u2013 0.49<\/strong>\u00a0<em>spread<\/em><\/p>\n<p>Pseudo-R<sup>2<\/sup> = 0.13, Nobs = 1238, Smpl for<em>\u00a0spread<\/em>, etc. 1921M02-2024M02. Bold face denotes significance at 5% msl.<\/p>\n<p>(Data notes: Ten year spread from Shiller. Three month rate from FRED (TB3MS) from 1934M04 onward; three month yield 1920M01-1934M03 is from NBER MacroHistory database\/Friedman-Schwartz.)<\/p>\n<p>Obviously, this is not a good fitting specification for this sample period. That\u2019s entirely the point \u2014 the term spread predictor\u2019s success is to some extent period-specific.M03<\/p>\n<p>That makes sense for the 1942M04-1951M03 period during which the Fed pegged short rates, and long rates were capped. Then the coefficient on the term spread has the wrong sign, and is statistically insignificant. But in fact the (constant coefficients) specification does not work well for the 1934-1941 period as well.<\/p>\n<p>\u00a0<\/p>\n<p>\u00a0<\/p>\n<p>\u00a0<\/p>\n<\/p><\/div>\n<p><!-- .entry-content --><\/p>\n<footer class=\"entry-meta\">\n\t\t\tThis entry was posted on <a href=\"https:\/\/econbrowser.com\/archives\/2024\/04\/120-years-of-recession-prediction-using-the-term-spread\" title=\"9:17 pm\" rel=\"bookmark\"><time class=\"entry-date\" datetime=\"2024-04-08T21:17:44-07:00\">April 8, 2024<\/time><\/a><span class=\"by-author\"> by <span class=\"author vcard\"><a class=\"url fn n\" href=\"https:\/\/econbrowser.com\/archives\/author\/menzie_chinn\" title=\"View all posts by Menzie Chinn\" rel=\"author\">Menzie Chinn<\/a><\/span><\/span>.\t\t\t\t\t\t\t\t<\/footer>\n<p><!-- .entry-meta -->\n\t<\/div>\n<p>[ad_2]<br \/>\n<br \/><a href=\"https:\/\/econbrowser.com\/archives\/2024\/04\/120-years-of-recession-prediction-using-the-term-spread\">Source link <\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>[ad_1] It doesn\u2019t always work. Figure 1: Recession probability one year ahead for 10 year-3 month Treasury spread (blue). NBER defined peak-to-trough recession dates shaded<\/p>\n","protected":false},"author":1,"featured_media":221924,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"_uf_show_specific_survey":0,"_uf_disable_surveys":false,"footnotes":""},"categories":[155],"tags":[],"_links":{"self":[{"href":"https:\/\/michigandigitalnews.com\/index.php\/wp-json\/wp\/v2\/posts\/221923"}],"collection":[{"href":"https:\/\/michigandigitalnews.com\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/michigandigitalnews.com\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/michigandigitalnews.com\/index.php\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/michigandigitalnews.com\/index.php\/wp-json\/wp\/v2\/comments?post=221923"}],"version-history":[{"count":0,"href":"https:\/\/michigandigitalnews.com\/index.php\/wp-json\/wp\/v2\/posts\/221923\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/michigandigitalnews.com\/index.php\/wp-json\/wp\/v2\/media\/221924"}],"wp:attachment":[{"href":"https:\/\/michigandigitalnews.com\/index.php\/wp-json\/wp\/v2\/media?parent=221923"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/michigandigitalnews.com\/index.php\/wp-json\/wp\/v2\/categories?post=221923"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/michigandigitalnews.com\/index.php\/wp-json\/wp\/v2\/tags?post=221923"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}