Since most of my lectures have been moved to Gate (a software called Canvas used on many campuses), I thought I'd share some teaching material that might be of interest to Econbrowser readers.
First, recessions and output gaps (Economics 442 Lecture 9):
figure 1: Real GDP quarter-on-quarter growth rate (blue), annual growth rate (tan), both calculated as logarithmic differences. NBER-defined recession peak-to-trough dates appear gray. Source: BEA, NBER, and author's calculations.
Please note that despite two consecutive quarters of negative GDP growth, there was no NBER-defined recession in the first half of 2022.In comparison, although the GDP in the latest quarter did not show negative growth for two consecutive quarters (when did it happen? See here.). Hamilton's Markov Recession Switch Model Didn't Show a Recession Thenand there are no Live Sam rules.
I distinguish between output gaps and recessions by referring to this chart:
figure 2: Output gap from CBO (bold black), Fleischman/Roberts-FRB (blue), HP filter estimates 1947-2023 (green) and Hamilton filter estimates 1967-2023 (red). NBER-defined recession peak-to-trough dates appear gray. Source: BEA, CBO February 2024, Federal Reserve Bank of Atlanta Taylor Rule Effectiveness February 2024NBER, and author's calculations.
Note that for the Eurozone, BCDC of CEPR It was noted that GDP growth has been negative for two consecutive quarters in 2023, but considering the increase in employment and working hours, a recession has not been declared.
What about recession predictions? This is discussed in this handout (recession warning system). Given the continued inversion of the yield curve, it's no surprise that the probability of a recession is expected to be high.On the other hand, my research Ferrara, Ahmed, cuckoo and Chatelet and Starla-Bourdillon Suggest additional predictors. These provide alternative estimates of the probability of recession. The impact of foreign term spreads and debt service ratios will be studied below.
image 3: Recession probabilities derived from term spreads and short rates (tan) and term spreads and short rates, debt service ratios, and foreign term spreads (blue). NBER-defined recession peak-to-trough dates appear gray. Source: NBER and author's calculations.
as i was Handouts:
…. The projected probability of a recession in February 2024 is 56% for spreads plus short-term rates, and the full-scale recession probability is 29.5%. What this means is that just because there were no clear signs as of January that a recession was about to begin, it doesn't mean we're guaranteed to avoid one. May 2024 is the best chance.
So be alert for signs of a recession.
By the way, this is an example of how research affects teaching.
