Following up on the examination of what the time period unfold predicts, right here’s the slope coefficients for the time period unfold, in regressions augmented with quick price, from 1946-2023Q3 (GDP progress 1947-2024Q3).
Determine 1: Regression coefficient of GDP progress lead 4 quarters on 10yr-3mo unfold for subsamples. + (***) signifies significance at 11% (1%) msl, utilizing Newey-West normal errors. Supply: Writer’s calculations.
The general least-squares break regression consequence (Bai-Perron) is:
If one runs a easy OLS regression on the final subsample (1984Q2-2023Q3), the adjusted-R2 is simply 0.04. The prediction appears like the next:
Determine 2: 12 months-on-12 months GDP progress price (blue) and predicted (tan). NBER outlined peak-to-trough recession dates shaded grey.
Clearly, the time period unfold Examine with the center interval recognized by the Bai-Perron technique:
Determine 3: 12 months-on-12 months GDP progress price (blue) and predicted (tan). NBER outlined peak-to-trough recession dates shaded grey.
These outcomes counsel that the time period unfold shouldn’t be at present an incredible predictor of progress (though it could develop into so once more sooner or later).
