Forecasting US Recessions: The Role of Sentiment

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Abstract

We study the role of sentiment variables as predictors for US recessions. We combine sentiment variables with either classical recession predictors or common factors based on a large panel of macroeconomic and financial variables. Sentiment variables hold vast predictive power for US recessions in excess of both the classical recession predictors and the common factors. The strong importance of the sentiment variables is documented both in-sample and out-of-sample.
Original languageEnglish
Title of host publicationThe Economics of Recession
EditorsArturo Estrella
Number of pages10
Place of publicationCheltenham
PublisherEdward Elgar Publishing
Publication date2017
Pages100-109
Chapter24
ISBN (Print)978 1 78643 424 1
Publication statusPublished - 2017
SeriesThe International Library of Critical Writings in Economics series
Volume337

Keywords

  • Business cycles
  • Forecasting
  • Factor analysis
  • Probit model
  • Sentiment variables

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