THE RELATIONSHIP BETWEEN THE INVERTED YIELD CURVE AND RECESSION PROBABILITIES
Nguyen, Wendy
Nguyen, Wendy
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2024-12-18
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Abstract
This study investigates whether the underlying factors of the yield curve, investor confidence (CBOE), consumer confidence (CSI), and money supply (M2), serve as key predictors of recession probabilities, and whether incorporating these factors enhances predictive accuracy compared to the yield spread alone. Using logistic regression models, the research evaluates these variables across three cases: no time lag, a 3-month lag, and a 6-month lag. The findings reveal that all four factors are significant predictors of recession probabilities, with their impacts varying by timing. Future research could refine this framework by optimizing time lags for individual variables, further enhancing its accuracy in predicting economic downturns.