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Do Asset Price Drops Foreshadow Recessions?
Author:
Mr. John C Bluedorn
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Mr. Jörg Decressin
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Mr. Marco Terrones
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Series:
IMF Working Papers
Volume/Issue:
Volume 2013: Issue 203
Language:
English
Publication Date:
02 Oct 2013
DOI:
https://doi.org/10.5089/9781484353363.001
ISBN:
9781484353363
ISSN:
1018-5941
Pages:
35
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
Legal-disclaimer:
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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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.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund