Author Archives: Menzie Chinn

Recession Probabilities Incorporating Foreign Term Spreads

Foreign term spreads in several major financial centers have inverted (you can see the yield curves here). What is the probability of a recession 12 months ahead, using the 10yr-3mo term spread, the foreign (Germany, UK, Japan, Canada) 10yr-3mo term spread, and the national Financial Conditions Index (FCI), as suggested by Ahmed and Chinn (2022)? Answer: High

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Different Recession Predictors at Different Horizons

Michael Kiley (FRB) has recently circulated a working paper showing that various indicators have greater predictive power at different horizons. Other papers have shown this forĀ  different term spreads, for credit spreads, foreign term spreads; in this case, Kiley shows unemployment and inflation have more predictive power at long horizons than short.

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