Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/215887
Authors: 
Feng, Shuaizhang
Sun, Jiandong
Year of Publication: 
2020
Series/Report no.: 
GLO Discussion Paper No. 523
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 in- dicator 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.
Subjects: 
Economic recession
Sahm rule
Misclassification errors
Unemployment rate
Document Type: 
Working Paper

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