Does the Survey of Professional Forecasters help predict the shape of recessions in real time?

Yunjong Eo, James Morley

Research output: Contribution to journalArticlepeer-review

Abstract

An updated version of our Markov-switching model of U.S. real GDP suggests the COVID-19 recession was more U-shaped than L-shaped. As with linear time series models, it is important to account for extreme outliers during the pandemic, but a simple decay function for volatility from 2020Q2 leads to robust inferences. When considering whether our model could have predicted the shape of recessions in real time, we find that feeding in data from the Survey of Professional Forecasters accurately predicts the nature of recovery at the time of the trough for each of the last four recessions, including the COVID-19 recession.

Original languageEnglish
Article number111419
JournalEconomics Letters
Volume233
DOIs
Publication statusPublished - 2023 Dec

Bibliographical note

Publisher Copyright:
© 2023

Keywords

  • COVID-19
  • L-shaped recession
  • Markov switching
  • Real-time analysis
  • U-shaped recession

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics

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