There was also some interesting action on the Intrade betting exchange this week.
The Intrade recession contract pays $10 if the U.S. goes into recession during 2008, defined as two consecutive quarters of negative real GDP growth. The price (quoted as a multiple of 100) has been edging up as the unfavorable economic indicators have been coming in this month.
Arindrajit Dube (via Mark Thoma) notes an interesting detail of the action this week– the Intrade recession contract spiked up on Monday as the global stock market decline began, consistent with my suggestion that these equity price changes signal a turn for the worse, both in the U.S. and abroad. Equally dramatic was the sharp drop in the implied recession probability on the news of the Fed’s surprise move.
Which puts us back where we left off last week, with a 2008 recession a 70% probability, according to Intrade bettors. Interestingly, the U.S. stock market also seems to be calling it a wash– bad news on the economy, offset by the positive response from the Fed.