Forecasting Models of Economic Crisis

After inconsolable events of 2008 , which began with the bankruptcy of the largest US investment bank Lehman Brothers in mid-September 2008, world began to make complains on economists for their non-fulfillment. Thanks to this, the interest of the international community for the dating and forecasting of economic crises revived. Accurately predicting business cycle turning points, and in particular impending economic recessions, is of great importance to households, businesses, investors and policy makers alike. Prior research has documented that a variety of economic and financial variables contain predictive information about future recessions in the United States. In this paper, a standard probit model is explained to predict the state of recession, explaining the variable indicators of leading indicators, such as interest rates for a 3-month and 10-year treasury obligations, with the yield of US Treasury securities and Eurodollar deposits. Econometric analysis of data is carried out using the ROC curve, and the quality of the model is determined by this AUROC.