Working Paper Revision

Binary Conditional Forecasts

Abstract: While conditional forecasting has become prevalent both in the academic literature and in practice (e.g., bank stress testing, scenario forecasting), its applications typically focus on continuous variables. In this paper, we merge elements from the literature on the construction and implementation of conditional forecasts with the literature on forecasting binary variables. We use the Qual-VAR [Dueker (2005)], whose joint VAR-probit structure allows us to form conditional forecasts of the latent variable which can then be used to form probabilistic forecasts of the binary variable. We apply the model to forecasting recessions in real-time and investigate the role of monetary and oil shocks on the likelihood of two U.S. recessions.

Keywords: Qual-VAR; recession; monetary policy; oil shocks;

JEL Classification: C22; C52; C53;

https://doi.org/10.20955/wp.2019.029

Status: Published in Journal of Business & Economic Statistics

Bibliographic Information

Provider: Federal Reserve Bank of St. Louis

Part of Series: Working Papers

Publication Date: 2021-04

Number: 2019-029

Note: Publisher DOI: https://doi.org/10.1080/07350015.2021.1920960

Related Works

• Working Paper Revision: Binary Conditional Forecasts