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Journal Articles Empirical Economics Year : 2013

Forecasting recessions using financial variables : the French case

Abstract

In this article, we focus on the ability of two financial variables—the yield curve spread and the euro–US dollar exchange rate—to predict French recessions over the period 1979–2010. First, we propose a turning point chronology for the French business cycle based on a classical conception of economic cycles and a non-parametric dating algorithm applied to the real GDP series. Second, static and dynamic probit models are developed and estimated to produce the recession probabilities. In-sample results show that the dynamic specification performs better than the static one and, above all, that the exchange rate has a stronger predictive power than the yield curve. Out-of-sample results finally confirm the predominant role assigned to the exchange rate in predicting the latest recession occurred in 2008.

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hal-01753806 , version 1 (29-03-2018)

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Francis Bismans, Reynald Majetti. Forecasting recessions using financial variables : the French case. Empirical Economics, 2013, 44 (2), pp.419-433. ⟨10.1007/s00181-012-0550-z⟩. ⟨hal-01753806⟩
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