Download or read book Forecasting Euro-Area Recessions Using Time-Varying Binary Response Models for Financial Markets written by Christophe Bellégo and published by . This book was released on 2010 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: Recent macroeconomic evolutions during the years 2008 and 2009 have pointed out the impact of financial markets on economic activity. In this paper, we propose to evaluate the ability of a set of financial variables to forecast recessions in the euro area by using a non-linear binary response model associated with information combination. Especially, we focus on a time-varying probit model whose parameters evolve according to a Markov chain. For various forecast horizons, we provide a readable and leading signal of recession by combining information according to two combining schemes over the sample 1970 - 2006. First we average recession probabilities and second we linearly combine variables through a dynamic factor model in order to estimate an innovative factor augmented probit model. Out-of sample results over the period 2007 - 2008 show that financial variables would have been helpful in predicting a recession signal as early as September 2007, that is around six months before the effective start of the 2008 - 2009 recession in the euro area.