Predicting Canadian Recessions Using Financial Variables: A Probit Approach

Joseph Atta–Mensah · Greg Tkacz

29 citations0/0 files storedRePEc: Research Papers in Economics

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Monetary Policy and Economic Impact Financial Markets and Investment Strategies Forecasting Techniques and Applications

Abstract

This paper examines the ability of a number of financial variables to predict Canadian recessions. Regarding methodology, we follow closely the technique employed by Estrella and Mishkin (1998), who use a probit model to predict U.S. recessions up to eight quarters in advance. Our main finding is that the spread between the yield on Canadian long bonds and the 90-day commercial paper rate is particularly useful in predicting Canadian recessions. This result is consistent with those of Estrella and Mishkin (1998).

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References

1989New Indexes of Coincident and Leading Economic Indicators 1991The Term Structure as a Predictor of Real Economic Activity 1998Predicting U.S. Recessions: Financial Variables as Leading Indicators 1990Term-structure forecasts of interest rates, inflation and real returns 1990What does the term structure tell us about future inflation?1998Does the term structure predict recessions? The international evidence 1991The Term Structure and World Economic Growth 1938Statistical Indicators of Cyclical Revivals

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2010The behaviour of small cap vs. large cap stocks in recessions and recoveries: Empirical evidence for the United States and Canada 2000A Re-examination of the Predictability of Economic Activity Using the Yield Spread 2011Predicting Canadian recessions using dynamic probit modelling approaches

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