The Sahm Rule and Predicting the Great Recession
There was no need for perfect foresight to predict the Great Recession of 2008; following the data was enough. This paper uses the experience of 2008 to propose a new rule for predicting a recession through the use of the fear of unemployment series.
Pub. Date
20 November, 2023
Pub. Type
Authors
Main Points
- For the majority of OECD countries, it is feasible to identify the start of the Great Recession using the rule of two successive negative quarters of GDP growth. We found this in 32 of the 39 countries we examined. Of these only three saw the recession start in 2007, while the rest started in 2008.
- Policymakers should focus on the qualitative data as an indicator of turning points. We find a good measure of when the recession started is when the fear of unemployment series begins to rise sharply.
- By using a ‘10 point rule’ - recession is signalled when the fear of unemployment series rose 10 points above its 2007 low - it was possible to forecast a recession across the OECD by April 2008.
Related Publications
publication
The Sahm Rule and Predicting the Great Recession Across OECD Countries
14 Oct 2021
Discussion Papers