Do asset price drops foreshadow recessions?

John C. Bluedorn, Jörg Decressin, and Marco E. Terrones

This paper examines the usefulness of asset prices in predicting recessions in the G-7 countries. It finds that asset price drops are significantly associated with the beginning of a recession in these countries. In particular, the marginal effect of an equity/house price drop on the likelihood of a new recession can be substantial. Equity price drops are, however, larger and are more frequent than house price drops, making them on average more helpful as recession predictors. These findings are robust to the inclusion of the term-spread, uncertainty, and oil prices. Lastly, there is no eviden

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Year of publication:	2013
Authors:	Bluedorn, John Christopher ; Decressin, Jörg ; Terrones, Marco E.
Publisher:	Washington, DC : IMF
Subject:	Finanzmarkt \| Financial market \| Wirtschaftsprognose \| Economic forecast \| G7-Staaten \| G7 countries

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Extent:	Online-Ressource (34 S.) graph. Darst.
Series:	IMF working papers. - Washington, DC : IMF, ZDB-ID 2108494-4. - Vol. 13/203
Type of publication:	Book / Working Paper
Type of publication (narrower categories):	Arbeitspapier ; Working Paper ; Graue Literatur ; Non-commercial literature
Language:	English
Notes:	Description based upon print version of record Systemvoraussetzungen: Acrobat Reader Cover; Contents; I. Introduction; II. Literature review; III. Data and Methodology; A. The Data; B. Methodology; IV. Empirical Results; A. A First Look at the Predictive Ability of Financial Asset Prices; B. Baseline Model; C. Robustness; 1. Estimation Method; 2. Additional Explanatory Variables; 3. Distributed Lags; V. Out-of-Sample Model Evaluation; VI. Conclusion; References; Tables; 1. Summary Statistics for the G-7; 2. Peaks and Troughs in the G-7; 3. Explaining Recession Starts in the G-7, Baseline Results; 4. Explaining Recession Starts in the G-7, Robustness to Estimation Method 5. Explaining Recession Starts in the G-7, Robustness to Additional Explanatory Variables6. Explaining Recession Starts in the G-7, Robustness to Distributed Lags; Figures; 1. Frequency Distribution of Real Equity Price Growth; 2. Frequency Distribution of Real House Price Growth; 3. Frequency Distribution of Term Spread; 4. Frequency Distribution of Natural Log of Implied Equity Market Volatility; 5. Frequency Distribution of Real Oil Price Growth; 6. Effect of Real Equity Price Growth; 7. Effect of Real House Price Growth; 8. Receiver Operating Characteristic Curve 9. Frequency Distribution of Predicted Probabibilities10. One-Step Ahead Classifier
ISBN:	978-1-4843-5336-3
Other identifiers:	10.5089/9781484353363.001 [DOI]
Source:	ECONIS - Online Catalogue of the ZBW

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