Evaluating the OECD’s main economic indicators at anticipating recessions

Using receiver operating characteristic (ROC) techniques, we evaluate the predictive content of the monthly main economic indicators (MEI) of the Organization for Economic Co‐operation and Development (OECD) for predicting both growth cycle and business cycle recessions at different horizons. From a...

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Bibliographic Details
Published in:Journal of forecasting 2021-01, Vol.40 (1), p.80-93
Main Authors: Camacho, Máximo, Palmieri, Gonzalo
Format: Article
Language:English
Subjects:
Business cycles
Economic indicators
growth cycles
income inequality
Interest rates
receiver operating curve
Recessions
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Summary:Using receiver operating characteristic (ROC) techniques, we evaluate the predictive content of the monthly main economic indicators (MEI) of the Organization for Economic Co‐operation and Development (OECD) for predicting both growth cycle and business cycle recessions at different horizons. From a sample that covers 123 indicators for 32 OECD countries as well as for Brazil, China, India, Indonesia, the Russian Federation, and South Africa, our results suggest that the OECD's MEI show a high overall performance in providing early signals of economic downturns worldwide, albeit they perform a bit better at anticipating business cycles than growth cycles. Although the performance for OECD and non‐OECD members is similar in terms of timeliness, the indicators are more accurate at anticipating recessions for OECD members. Finally, we find that some single indicators, such as interest rates, spreads, and credit indicators, perform even better than the composite leading indicators.
ISSN:0277-6693
1099-131X
DOI:10.1002/for.2709