Both the onset and the severity of a recession remain elusive
An and al. look at 63 countries for the years 1992 to 2014 and find that, although forecasters are generally aware that recession years will be different from other years, they underestimate the magnitude of the recession by a wide margin.
The figure above shows that in April of the year before the recession, the forecasts— both from the private sector (Consensus Forecasts) and the official sector (IMF) are for 3 percent growth. While the forecast is marked down by October, it remains far from signaling a recession. In the year of the recession, forecasters do call for a recession by April but one that is much milder than what transpires. It is only as the year is ending that forecasts catch up with reality, shown in the figure by the solid black line
How Well Do Economists Forecast Recessions?
Authors: Zidong An, João Tovar Jalles, Prakash Loungani
From: IMF
Warning systems? Follow the past!
Idier and Coudert make two interesting points: a)”economists can only forecast crises whose warning signals are similar to those of past crises” and b) expert judgement compliments the statistical systems.
Predicting financial crises: a balancing act
By: Julien Idier, Virginie Coudert – Banque de France
The inevitability of a crisis
Danielsson and al. suggest to think outside the box: low volatility is a better warning signal than high volatility. It’s during low volatility periods that agents become more optimistic and start taking ever increasing risks that eventually lead to a crisis.
Low risk as a predictor of financial crises
By: Jon Danielsson, Marcela Valenzuela, Ilknur Zer – LSE, University of Chile, FRB
