This paper adopts a novel approach to studying the evolution of interest rate term structure over the U.S. business cycles and to predicting recessions. Applying an effective algorithm, I classify the Treasury yield curve into distinct shapes and find the less frequent shapes intrinsically...

The ability of term spread to forecast U.S. output growth could be improved by two ways: (i) Combining with the Harrod-Domar variable - net saving as a percentage of gross national income - that used to proxy for aggregate supply; and (ii) Using a system of simultaneous equations, in which U.S....

Severe simultaneous recessions are defined to occur when at least half of the countries under investigation (Australia, Canada, Germany, Japan, United Kingdom, and United States) are in recession simultaneously. I pose two new research questions that extend upon stylized facts for US recessions....

The equity premium follows a pronounced v-shape pattern around the beginning of recessions. It sharply drops into negative territory just before business cycle peaks and then strongly recovers as the recession unfolds. Recessions are preceded by an inverted yield curve. Thus probit models using...

We have studied the relationship between Receiver Operating Characteristics (ROC) and Precision-Recall Curve (PRC) both analytically and using a real-life empirical example of yield spread as a predictor of recessions. We show that false alarm rate in ROC and inverted precision in PRC are...

In this paper, we propose an econometric model of the joint dynamic relationship between the yield curve and the economy to predict business cycles. We examine the predictive value of the yield curve to forecast future economic growth as well as the beginning and end of economic recessions at...

An OLS and probit framework is used to examine the predictive power of yield spreads with respect to GDP growth and recessions in the Eurozone from the 1990s to the recent past. Credit default swap (CDS) data on sovereign bonds, which provide a direct measure of default risk, are employed as...

We developed a factor regression model, nicknamed “GUPTY”, to study the business cycles, and their relation to the monetary policy. It covers several major macro-economic quantities, including unemployment rate, GDP, and weekly payrolls in the U.S. after WWII. The model postulates that these...

We develop a flexible nonparametric similarity-based approach to predict the state of the business cycle in different interest rate environments. Our approach provides methodological advantages over parametric logit and probit models and new empirical perspectives on the usefulness of the term...

Interest rate data are an important element of macroeconomic forecasting. Projections of future interest rates are not only an important product themselves, but also typically matter for forecasting other macroeconomic and financial variables. A popular class of forecasting models is linear...