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An Evaluation of Leading Indicators in the Context of a Swedish Recession

Soliman, Rami LU (2023) NEKP01 20231
Department of Economics
Abstract
The aim of this paper is to evaluate potential leading indicators of a recession in Sweden. To answer the question potential leading indicators are first identified with previous findings in literature and with the current state of the Swedish financial system as background. Then these variables will be included in a probit regression at different forecasting horizons. The horizons are one, two and four quarters ahead. The explanatory variables that are included in the regressions are Interest, Rate Spread, Credit, House Prices, OMX30 index, NYSE index, VIX, Inflation Gap, Current Account-to-GDP, and Unemployment rate, where the Spread is significant at all horizons and the stock price indices at a forecasting horizon of two quarters... (More)
The aim of this paper is to evaluate potential leading indicators of a recession in Sweden. To answer the question potential leading indicators are first identified with previous findings in literature and with the current state of the Swedish financial system as background. Then these variables will be included in a probit regression at different forecasting horizons. The horizons are one, two and four quarters ahead. The explanatory variables that are included in the regressions are Interest, Rate Spread, Credit, House Prices, OMX30 index, NYSE index, VIX, Inflation Gap, Current Account-to-GDP, and Unemployment rate, where the Spread is significant at all horizons and the stock price indices at a forecasting horizon of two quarters ahead. Finding that interest rate spread is significant in predicting the recession probability in Sweden confirms previous empirical findings. Also, from last the predicted recession probability in the models the interest rate spread does not have to decrease all too much to spur a recession probability over 50%. Furthermore, when performing a robustness check the results are somewhat inconclusive which implies that more contributions to evaluating leading indicators for small open economies like Sweden is needed in the literature. (Less)
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author
Soliman, Rami LU
supervisor
organization
course
NEKP01 20231
year
type
H2 - Master's Degree (Two Years)
subject
keywords
Probit, Financial Crisis, Recession, Sweden, Leading Indicators
language
English
id
9131550
date added to LUP
2023-09-04 09:09:04
date last changed
2023-09-04 09:09:04
@misc{9131550,
  abstract     = {{The aim of this paper is to evaluate potential leading indicators of a recession in Sweden. To answer the question potential leading indicators are first identified with previous findings in literature and with the current state of the Swedish financial system as background. Then these variables will be included in a probit regression at different forecasting horizons. The horizons are one, two and four quarters ahead. The explanatory variables that are included in the regressions are Interest, Rate Spread, Credit, House Prices, OMX30 index, NYSE index, VIX, Inflation Gap, Current Account-to-GDP, and Unemployment rate, where the Spread is significant at all horizons and the stock price indices at a forecasting horizon of two quarters ahead. Finding that interest rate spread is significant in predicting the recession probability in Sweden confirms previous empirical findings. Also, from last the predicted recession probability in the models the interest rate spread does not have to decrease all too much to spur a recession probability over 50%. Furthermore, when performing a robustness check the results are somewhat inconclusive which implies that more contributions to evaluating leading indicators for small open economies like Sweden is needed in the literature.}},
  author       = {{Soliman, Rami}},
  language     = {{eng}},
  note         = {{Student Paper}},
  title        = {{An Evaluation of Leading Indicators in the Context of a Swedish Recession}},
  year         = {{2023}},
}