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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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Submitted on : Thursday, March 29, 2018 - 5:00:57 PM
Last modification on : Saturday, July 9, 2022 - 3:13:35 AM


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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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