Forecasting the probability of US recessions : A Probit and dynamic factor modelling approach

Research output: Journal Publications and Reviews (RGC: 21, 22, 62)21_Publication in refereed journalpeer-review

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Original languageEnglish
Pages (from-to)651-672
Journal / PublicationCanadian Journal of Economics
Issue number2
Online published4 May 2011
Publication statusPublished - May 2011
Externally publishedYes


Quantifying the probability of U.S. recessions has become increasingly important since August 2007. In a data-rich environment, this paper is the first to apply a Probit model to common factors extracted from a large set of explanatory variables to model and forecast recession probability. The results show the advantages of the proposed approach over many existing models. Simulated real-time analysis captures all recessions since 1980. The proposed model also detects a significant jump in the next six-month recession probability based on data up to November 2007, one year before the formal declaration of the recent recession by the NBER. © Canadian Economics Association.