PREDICTING US RECESSIONS - FINANCIAL VARIABLES AS LEADING INDICATORS

This paper examines the out-of-sample performance of various financial variables as predictors of U.S. recessions. Series such as interest r ates and spreads, stock prices, and monetary aggregates are evaluated individually and in comparison with other financial and nonfinancial i ndicators. The analysis focuses on out-of-sample performance from one to eight quarters ahead. Results show that stock prices are useful wit h one-to three-quarter horizons, as are some well-known macroeconomic indicators. Beyond one quarter, however, the slope of the yield curve emerges as the clear individual choice and typically performs better b y itself out of sample than in conjunction with other variables.