Early identification of economic recessions.

A new GLO Discussion Paper proposes a novel misclassification-error-adjusted Sahm recession indicator that offers earlier identification of economic recessions.

The Global Labor Organization (GLO) is an independent, non-partisan and non-governmental organization that functions as an international network and virtual platform to stimulate global research, debate and collaboration.

GLO Discussion Paper No. 523, 2020

Misclassification-errors-adjusted Sahm Rule for Early Identification of Economic RecessionDownload PDF
by
Feng, Shuaizhang & Sun, Jiandong

GLO Fellow Shuaizhang Feng & Editor of the Journal of Population Economics

Shuaizhang Feng

Author Abstract: Accurate identification of economic recessions in a timely fashion is a major macroeconomic challenge. The most successful early detector of recessions, the Sahm rule, relies on changes in unemployment rates, and is thus subject to measurement errors in the U.S. labor force statuses based on survey data. We propose a novel misclassification-error-adjusted Sahm recession indicator and provide empirically-based optimal threshold values. Using historical data, we show that the adjusted Sahm rule offers earlier identification of economic recessions. Based on the newly released U.S. unemployment rate in March 2020, our adjusted Sahm rule diagnoses the U.S. economy is already in recession, while the original Sahm rule does not.

GLO Discussion Papers are research and policy papers of the GLO Network which are widely circulated to encourage discussion. Provided in cooperation with EconStor, a service of the ZBW – Leibniz Information Centre for Economics, GLO Discussion Papers are among others listed in RePEc (see IDEAS, EconPapers). Complete list of all GLO DPs – downloadable for free.

Ends;

This entry was posted in Events, Interview. Bookmark the permalink.