Could Diffusion Indexes Have Forecasted the Great Depression?
Gabriel Mathy,
Yongchen Zhao
Abstract:Was the Depression forecastable? In this paper, we test how effective diffusion indexes are in forecasting the deepest recession in US history: the Great Depression. In a seminal paper, Moore considered the effectiveness of diffusion indexes, though retrospectively and not out‐of‐sample. We reconstruct Moore's diffusion indexes for this historical period and make our own comparable indexes for out‐of‐sample predictions. We find that diffusion indexes, including the horizon‐specific ones we produce, can nowcast… Show more
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