Binary Conditional Forecasts

Michael McCracken, Joseph McGillicuddy and Michael Owyang

No 2019-029, Working Papers from Federal Reserve Bank of St. Louis

Abstract: While conditional forecasting has become prevalent both in the academic literature and in practice (e.g., bank stress testing, scenario forecasting), its applications typically focus on continuous variables. In this paper, we merge elements from the literature on the construction and implementation of conditional forecasts with the literature on forecasting binary variables. We use the Qual-VAR [Dueker (2005)], whose joint VAR-probit structure allows us to form conditional forecasts of the latent variable which can then be used to form probabilistic forecasts of the binary variable. We apply the model to forecasting recessions in real-time and investigate the role of monetary and oil shocks on the likelihood of two U.S. recessions.

Keywords: Qual-VAR; recession; monetary policy; oil shocks (search for similar items in EconPapers)
JEL-codes: C22 C52 C53 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2019-10-01, Revised 2021-04
New Economics Papers: this item is included in nep-cba, nep-ecm, nep-ets and nep-ore
Note: Publisher DOI: https://doi.org/10.1080/07350015.2021.1920960
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Published in Journal of Business & Economic Statistics

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Journal Article: Binary Conditional Forecasts (2022)
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DOI: 10.20955/wp.2019.029

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