The Unassuming Economist

From a VOX article:

“Business economists argue that the length of an expansion is a good indicator of when a recession will hit. Using both parametric and non-parametric measures, this column finds strong support for the theory from post-WWII data on the US economy. The findings suggest there is good reason to expect a US recession in the next two years.”

“[…] we estimate in Beaudry and Portier (2019) the probability of the US economy entering a recession in the following year (or following two years), conditional on the expansion having lasted q quarters. This can be done in a parametric way based on the Weibull distribution, or non-parametrically using Kaplan and Meier’s estimator of the survival function. Regardless of the method, and using post-WW2 US data, there is consistent evidence of age-dependence, as shown in Figure 1. For an expansion that has lasted only five quarters, the probability of entering a recession in the next year is around 10%, while this increases to 30-40% if the expansion has lasted over 35 quarters. Similarly, if looking at a two years window, we find the probability of entering a recession in the next two years raises from 25-30% to around 50-80% as the expansion extends from five quarters to 32 quarters (the exact probability depends on whether we use a parametric or a non-parametric approach). ”