A0850
Title: Similarity-based recession predictions in different monetary policy conditions
Authors: Visa Kuntze - University of Turku (Finland) [presenting]
Henri Nyberg - University of Turku and University of Helsinki (Finland)
Samuel Rauhala - University of Turku (Finland)
Abstract: A nonparametric similarity-based approach is developed to predict the state of the business cycle in different interest rate environments. As an alternative to the existing parametric logit and probit models, our approach provides several methodological advances and new perspectives on the usefulness of the interest rate level and the term spread as leading indicators. The empirical findings, obtained with international data from the U.S., euro area and Japan, show that the predictability of business cycles is dependent on the stance of monetary policy such as the level of the short-term interest rates.
