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Tuesday, April 11, 2006



Via James Hamilton's Econbrowser:

Jonathan Wright, a brilliant research economist at the Federal Reserve Board, recently completed a very interesting paper titled The Yield Curve and Predicting Recessions. Wright's research seems to have been influential in Fed Chair Ben Bernanke's recent assessment that the current very flat yield curve does not signify a coming significant economic slowdown.

In a nutshell, Wright finds that the combination of yield curve inversion and a high federal funds rate provides the best prediction of future recessions, which dovetails nicely with Dattels and Rumpletin's arguments.

Political Calculations offers a tool for finding the likelihood of a recession occurring in the U.S. within a twelve month period based upon Wright's work.

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