Do Asset Price Drops Foreshadow Recessions?John Bluedorn, Jörg Decressin and Marco Terrones No 2013/203, IMF Working Papers from International Monetary Fund Abstract: This paper examines the usefulness of asset prices in predicting recessions in the G-7 countries. It finds that asset price drops are significantly associated with the beginning of a recession in these countries. In particular, the marginal effect of an equity/house price drop on the likelihood of a new recession can be substantial. Equity price drops are, however, larger and are more frequent than house price drops, making them on average more helpful as recession predictors. These findings are robust to the inclusion of the term-spread, uncertainty, and oil prices. Lastly, there is no evidence of significant bias resulting from the rarity of recession starts. Keywords: WP; price growth; asset price; frequency distribution; growth model; term spread; Business cycles; Macroeconomic forecasting; Financial markets; Uncertainty; Oil Prices; Binary dependent variable models; lag terms; asset price collapse; house price change; price volatility; price movement; equity price drop; Asset prices; Housing prices; Stocks; Stock markets; Global (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:imf:imfwpa:2013/203 Ordering information: This working paper can be ordered from Access Statistics for this paper More papers in IMF Working Papers from International Monetary Fund International Monetary Fund, Washington, DC USA. Contact information at EDIRC. |
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