Financial models accurately predict Euro-area recessions, giving early warning signals.
The article examines how financial factors can predict recessions in the euro area. Researchers used a special model that changes over time to analyze data from 1970 to 2006. By combining different information sources, they found that financial variables could have signaled the 2008-2009 recession in the euro area as early as September 2007, about six months before it actually started.