A Note on the Probability of Recessions: Can Statistics Cananada's Leading Index Predict as Well as MARS
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Abstract
In this note we estimate the probability of recession using the revised leading index published by Statistics Canada. The results are compared to probabilities derived from a new non-parametric regression routine. While the indexes provide similar information on the probability that the economy is currently in recession, the non-parametric approach appears to offer more reliable information. Two out-of-sample forecasting exercises demonstrate the potential benefits to the use of the multivariate adaptive regression spline model.