An investigation into the probability that this is the last year of the economic expansion

Abstract

AbstractThe paper finds determinants for the end of U.S. economic expansions since 1960 using a binary variable approach. Different from previous studies, we specify a left‐hand side variable that is coded as one during the year prior to NBER dated recessions rather than during recessions. We thereby avoid confounding the occurrence of a recession with its length. We limit the sample by excluding recession periods and the recovery months during the subsequent expansions. This eliminates contamination of the conclusions by taking out observations for which subsequent recessions are unlikely. The resulting specification with the interest rate spread as a predictor outperforms the traditionally used equation and is robust against alternative specifications regarding the warning period.