Recession Ahead (Part I)?

I noticed, recently, worries about the possibility of an up-coming recession in the US, see 1 (and the accompanying puzzle 2). It’s been a long time since my last entry on the topic… Sufficient time, indeed, for the business-cycle to eventually complete. And sufficient time for me to work on a new mixed-frequency extension of the MDFA, 3. As fruit of these efforts  let me here share today’s up-date of the new daily real-time indicator.

  • This indicator targets industrial production which is on decline in the US.
  • The cycle is artificially magnified over the secular trend i.e. this indicator deliberately overemphasizes the business-cycle.
    • I’ll post our `neutral’ design (no overemphasis of cycle) in a subsequent entry.
  • All filters are asymmetric real-time designs (revisions are solely due to historical data being up-dated along vintages)


2 thoughts on “Recession Ahead (Part I)?

  1. Results on outperformance look very encouraging (although it is hard for me to tell how much of this is truly “out-of-sample.”)

    The subseries results are also very useful. If I’m reading it correctly, INDPRO is pretty much the only source of the recent movement. From the broader time-scale, I can’t really see how often we get INDPRO movements of this size without a recession. (Am I also right in thinking that the INDPRO series is the current vintage and not just initial estimates?)

    • Couple of answers: this is a new (daily) design and the hyperparameters are approx. 6 months old: this period (6 months) corresponds to the out-of-sample span. INDPRO and ICSA are dragging down; the S&P is about zero (based on data up to 19:01:2016); employment series are positive. As I mentioned, filters are asymmetric and therefore “revisions are solely due to historical data being up-dated along vintages” which means that I’m using the current vintages: just too busy to collect first releases (not sure if they are available for ICSA). I’ll analyze future revisions of the indicator i.e. I’m building a revision triangle made of indicator-vintages.

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