No apparent recession as of August 2024 data (my interpretation \u2013 see the opposing views here<\/a>). Using year-ago financial data, what would have probit regressions have indicated? It matters which variables you use, and whether you include the 2020 recession.<\/p>\n Figure 1:<\/strong> Year ahead probit regression estimated probabilities, using 10yr-3mo term spread and short rate (bold dark blue), same using sample ending before pandemic (light blue), term spread, short rate and foreign term spread (tan), term-premium adjusted 10yr-3mo term spread and term premium and debt-service ratio (green). Sample 1986-2024M08, assuming no recession has begun by 2024M08. NBER defined peak-to-trough recession dates shaded gray. Numbers indicate estimated probabilities for September 2024. Source: author\u2019s calculations.<\/em><\/p>\n Discussion of use of foreign term spread, a la Ahmed-Chinn (JMCB, 2024) here<\/a>; and use of debt-service ratio a la Chinn-Ferrara (2024)<\/a> here<\/a>. Breaking out the term premium discussed here<\/a>.<\/p>\n Note that the probabilities associated with the term spread\/short rate specification depend critically on the sample used, in particular whether the 2020 recession is included in the term spread & short rate specification. Using only term spread data up to 2018M12 (so recession\/no recession dummies up to 2019M12) and predicting out-of-sample yields a recession probability of 78% in September (this month). Incorporating the 2020 recession into the sample results in only a 48% probability for this month (peak at 58% in May). If one thinks the 2020 recession would not have occurred without the pandemic, then one could reasonably argue for throwing that data out.<\/p>\n So\u2026 the recession may still come (or has already come<\/a> and we don\u2019t know it).<\/p>\n \u00a0<\/p>\n \u00a0<\/p>\n<\/p><\/div>\n <\/p>\n![\"\"](\"https:\/\/econbrowser.com\/wp-content\/uploads\/2024\/09\/recprob_probits_aug24.png\")
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