The views expressed in this paper are soley those of the author. Much of this work was completed while the author was a research economist at the U.S. Bureau of Economic Analysis (BEA). I thank Marcelle Chauvet, Doug Elmendorf, Charles Fleischman, Bruce Grimm, David Lebow, Jeremy Piger, Jeremy Rudd, Dan Sichel, John Stevens, David Wilcox, Jonathan Wright, and seminar participants at BEA and the Board of Governors for comments.
Estimating Probabilities of Recession in Real Time Using GDP and GDI
Article first published online: 27 JAN 2012
© 2012 The Ohio State University
Journal of Money, Credit and Banking
Volume 44, Issue 1, pages 235–253, February 2012
How to Cite
NALEWAIK, J. J. (2012), Estimating Probabilities of Recession in Real Time Using GDP and GDI. Journal of Money, Credit and Banking, 44: 235–253. doi: 10.1111/j.1538-4616.2011.00475.x
- Issue published online: 27 JAN 2012
- Article first published online: 27 JAN 2012
- Received January 4, 2008; and accepted in revised form December 6, 2011.
- business cycles;
- recession probabilities;
- Markov switching models;
- real-time data analysis
This work estimates Markov switching models on real-time data and shows that the growth rate of gross domestic income (GDI), deflated by the gross domestic product (GDP) deflator, has done a better job recognizing the start of recessions than has the growth rate of real GDP. This result suggests that placing an increased focus on GDI may be useful in assessing the current state of the economy. In addition, the paper shows that the definition of a low-growth phase in the Markov switching models changed considerably from 1978 to 2005. The models increasingly came to define this phase as an extended period of around zero rather than negative growth, diverging somewhat from the traditional definition of a recession.