Working Paper

Recession forecasting using Bayesian classification

Abstract: The authors demonstrated the use of a Nave Bayes model as a recession forecasting tool. The approach has a close connection to Markov-switching models and logistic regression but also important differences. In contrast to Markov-switching models, Nave Bayes treats National Bureau of Economic Research business cycle turning points as data rather than hidden states to be inferred by the model. Although Nave Bayes and logistic regression are asymptotically equivalent under certain distributional assumptions, the assumptions do not hold for business cycle data.

Keywords: Forecasting; Naïve Bayes model; Recession;

JEL Classification: C11; C5; E32; E37;

Bibliographic Information

Provider: Federal Reserve Bank of Kansas City

Part of Series: Research Working Paper

Publication Date: 2016-09-01

Number: RWP 16-6

Pages: 37 pages