Today we present a guest post written by Danilo Leiva-León (European Central Bank), Hervé Le Bihan (Bank of France) and Matías Pacce (Bank of Spain). The views expressed in this paper are those of the authors and not necessarily those of the Bank of France, Bank of Spain, European Central Bank or the Eurosystem.
In a previous post, I presented forecasts of recession based on probit models using term spread plus short rate, and term spread plus short rate, foreign term spread and debt service ratio. The latter only went of to 2024M03 since BIS only published debt service ratio data up to March. I have extrapolated the ratio to June, so as to obtain the following forecasts.
Remember those warnings of an economic apocalypse in Seattle as the minimum wage was raised up to $15-16 per hour? Mark J. Perry was at the forefront of this (faulty) thesis. Having to teach Contemporary Public Affairs this semester, I was moved to return to this debate.
Despite some views that GDP growth would be revised downward substantially (see discussion here), the recent trajectory of GDP and GDO was largely unchanged (even if the level over the period 2019 onward was). A lot of the revisions are summarized in this figure from Paweł Skrzypczyński:
We don’t know much, but we know tax cuts and tariffs are on the agenda. I suppose that, while he might not execute the Fed Chair (that’s reserved for a select few), he is likely to try to otherwise eject him/her if policy is not to his liking.
Coming tomorrow morning – the revisions to GDP over the last five years incorporating lots of new source data may change substantially our understanding of the evolution of economic activity (discussion by Claudia Sahm) (in contrast, last year’s annual revisions didn’t really change the outlook).
CROWE and Young America’s Foundation are bringing Arthur Laffer to speak at UW Madison today (Grainger Hall, Plenary Room, 5:30-6:30 CT). The timing is fortuitous, as the state Senate is moving forward on passing AB386, which would exempt some portion of retiree income from taxes (up to 100K for single filers, 150K for married filing jointly), and drop the tax rate.
Forecasts of recession vary with indicators (term spread, foreign term spreads, debt-service ratios). Forecasts of economic activity — as measured by industrial produciton — also differ by predictor.
From the paper published in Service Science (2023), Alireza Boloori (University of Washington-Tacoma), and Soroush Saghafian (Harvard):
This is a reprint of a post from 2020 entitled “The Worst Statistical Analysis I Have Seen This Year”, motivated by Mr. Bruce Hall‘s urging that we look at a Judith Curry link.