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November/December 2002, 
Vol. 84, No. 6
Posted 2002-11-01

Regime-Dependent Recession Forecasts and the 2001 Recession

by Michael J. Dueker

Business recessions are notoriously hard to predict accurately, hence the quip that economists have predicted eight of the last five recessions. This article derives a six-month-ahead recession signal that reduces the number of false signals outside of recessions, without impairing the ability to signal the recessions that occur. In terms of predicting the 1990-91 and 2001 recessions out of sample, the new recession signal, like other recession signals, largely misses the 1990-91 recession with its six-month-ahead forecasts. In contrast, a recession onset in April or May 2001 was predicted six months ahead of the 2001 recession, which was close to the actual turning point of March 2001.