Working Paper

Estimating probabilities of recession in real time using GDP and GDI

Abstract: This work estimates Markov switching models on real time data and shows that the growth rate of gross domestic income (GDI), deflated by the GDP deflator, has done a better job recognizing the start of recessions than has the growth rate of real GDP. This result suggests that placing an increased focus on GDI may be useful in assessing the current state of the economy. In addition, the paper shows that the definition of a low-growth phase in the Markov switching models has changed over the past couple of decades. The models increasingly define this phase as an extended period of around zero rather than negative growth, diverging somewhat from the traditional definition of a recession.

Keywords: Gross domestic product; Recessions; Econometric models;

Bibliographic Information

Provider: Board of Governors of the Federal Reserve System (U.S.)

Part of Series: Finance and Economics Discussion Series

Publication Date: 2006

Number: 2007-07