Now the author, University of Oregon Professor Jeremy Piger, posted some FAQs and data for the chart online. Professor Piger writes:
2. How should I interpret these probabilities as a recession signal?Click on graph for larger image in new window.
Historically, three consecutive months of smoothed probabilities above 80% has been a reliable signal of the start of a new recession, while three consecutive months of smoothed probabilities below 20% has been a reliable signal of the start of a new expansion. For an analysis of the performance of the model for identifying new turning points in real time, see:
Chauvet, M. and J. Piger, “A Comparison of the Real-Time Performance of Business Cycle Dating Methods,” Journal of Business and Economic Statistics, 2008.
Here is the chart from FRED at the St Louis Fed.
Obviously we haven't seen three consecutive months above 80%. Also I expect the recent data point to be revised down.
This is kind of a Woody Allen and Marshall McLuhan moment! Those arguing this chart indicated a 100% probability of a new recession knew nothing of Piger's work. ... Continue to read.
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