Yet another tool to try to assess the probability of a recession.
Betting exchange Tradesports is now offering a contract based on whether the U.S. economy goes into recession during 2007 (under their Financial – Economic Numbers category). Although trading so far has been quite thin, bettors up to this point are not putting that probability higher than 20%. The above graph should be a live link, so you can check back on this page from time to time for updates. You might also want to revisit Political Calculations to update Jonathan Wright’s yield curve calculations.
Given the concerns expressed by Stephen Kirchner about the original details of the Tradesports contract, I suggested to Tradesports a
tighter definition of what it means for the U.S. to go into a recession, which they’ve now adopted. The current contract declares that the U.S. will be said to have experienced a recession in 2007 if the Commerce Department numbers as reported on February 15, 2008 show 2 consecutive quarters of negative real GDP growth between 2006:Q4 and 2007:Q4.
Of course, here at Econbrowser we will make a formal call as to whether or not the economy has gone into a recession on the basis of my own recession probability index.