Jaehyuk Choi, Desheng Ge, Kyu Ho Kang, Sungbin Sohn
arXiv 23 Jan 2021 · Econometrics · publishedJournal of Forecasting (2023) · 5 citations (OpenAlex)
arXiv:2101.09394 · PDF · DOI · OpenAlex · Extracted main text
The literature on using yield curves to forecast recessions customarily uses 10-year--three-month Treasury yield spread without verification on the pair selection. This study investigates whether the predictive ability of spread can be improved by letting a machine learning algorithm identify the best maturity pair and coefficients. Our comprehensive analysis shows that, despite the likelihood gain, the machine learning approach does not significantly improve prediction, owing to the estimation error. This is robust to the forecasting horizon, control variable, sample period, and oversampling of the recession observations. Our finding supports the use of the 10-year--three-month spread.
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The works this paper leans on most, across its whole bibliography — not restricted to papers in our corpus. Ranked by composite intensity, which combines how often a work is mentioned, how many sections mention it, and how much of that falls in the main text rather than the appendix.
| Reference | Intensity | Mentions | Sections | Main text | |
|---|---|---|---|---|---|
| 1 | Estrella, A (2005) The Yield Curve as a Leading Indicator | 0.737 | 3 | 2 | 100% |
| 2 | Puglia, M., Tucker, A (2020) Machine Learning, the Treasury Yield Curve and Recession Forecasting | 0.737 | 3 | 2 | 100% |
| 3 | Bauer, M.D., Mertens, T.M (2018) Information in the Yield Curve about Future Recessions | 0.644 | 2 | 2 | 100% |
| 4 | Döpke, J., Fritsche, U., Pierdzioch, C (2017) Predicting recessions with boosted regression trees | 0.644 | 2 | 2 | 100% |
| 5 | Gogas, P., Papadimitriou, T., Matthaiou, M., Chrysanthidou, E (2015) Yield Curve and Recession Forecasting in a Machine Learning Framework | 0.644 | 2 | 2 | 100% |
| 6 | Hall, A.S (2018) Machine Learning Approaches to Macroeconomic Forecasting | 0.644 | 2 | 2 | 100% |
| 7 | Stekler, H.O., Ye, T (2017) Evaluating a leading indicator: An application the term spread | 0.644 | 2 | 2 | 100% |
| 8 | Hastie, T., Tibshirani, R., Friedman, J (2009) The Elements of Statistical Learning: Data Mining, Inference, and Prediction, Second Edition | 0.585 | 3 | 1 | 100% |
| 9 | Estrella, A., Trubin, M (2006) The Yield Curve as a Leading Indicator: Some Practical Issues | 0.511 | 2 | 1 | 100% |
| 10 | Rudebusch, G.D., Williams, J.C (2009) Forecasting Recessions: The Puzzle of the Enduring Power of the Yield Curve | 0.511 | 2 | 1 | 100% |
Showing the top 10 of 30 scored citations.