U.S. recession is looming in 2020, as data signal higher odds of occurrence
In their effort to identify the arrival of business cycle turning points, economists employ models that estimate the chance of recession over different time horizons and using a variety of economic and financial factors as explanatory variables. The prediction model of reference has been that using the spread of long-dated over short-dated yields, as the unique explanatory variable, given its consistent predictive power over time.
In an attempt to explore the prognostic ability of the univariate benchmark probability model (relying solely on the yield curve slope) versus alternative multi factor versions over different horizons, and to provide useful insights regarding the underlying modeling, as well as the likelihood of an approaching recession, competitive multivariate Probit models have been developed and tested.
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