A Contrarian View on Recession Probabilities: Are We Out of the Woods?

As I have observed before, the explanation for why we have not yet seen a recession’s onset in the data yet could be one of the following: (1) the model based on historical correlations is no longer applicable (DGP has changed), (2) we were using the wrong model, (3) the recession is yet to come, but has not yet shown up in the data. In addition, it could be the model was right, and in a probabilistic world, there’s never a sure thing.

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