Predicting Recessions (Baba & Kisinbay)

Predicting recessions: A new approach for identifying leading indicators and forecast combinations by Chikako Baba and Turgut Kisinbay published by IMF (10/2011). “This study proposes a data-based algorithm to select a subset of indicators from a large data set with a focus on forecasting recessions. The algorithm selects leading indicators of recessions based on the forecast encompassing principle and combines the forecasts. An application to U.S data shows that forecasts obtained from the algorithm are consistently among the best in a large comparative forecasting exercise at various forecasting horizons.”