Structural break threshold VARs for predicting US recessions using the spread

✍ Scribed by Ana Beatriz C. Galvão

• Book ID: 102290265
• Publisher: John Wiley and Sons
• Year: 2006
• Tongue: English
• Weight: 443 KB
• Volume: 21
• Category: Article
• ISSN: 0883-7252
• DOI: 10.1002/jae.840

✦ Synopsis

Abstract

This paper proposes a model to predict recessions that accounts for non‐linearity and a structural break when the spread between long‐ and short‐term interest rates is the leading indicator. Estimation and model selection procedures allow us to estimate and identify time‐varying non‐linearity in a VAR. The structural break threshold VAR (SBTVAR) predicts better the timing of recessions than models with constant threshold or with only a break. Using real‐time data, the SBTVAR with spread as leading indicator is able to anticipate correctly the timing of the 2001 recession. Copyright © 2006 John Wiley & Sons, Ltd.