Can economists forecast recession?
LAST week, Alan Greenspan proved that a retired maestro can still seem to conduct the world’s financial orchestra, even if he no longer occupies the podium.
On Monday, Mr. Greenspan, the former Federal Reserve chairman, said that “it is possible we can get a recession in the latter months of 2007.” His musings, to a group of executives in Hong Kong, were followed over the next 48 hours by a break in the frothy Chinese market and poor numbers on United States home sales and durable-goods orders. Together, the events contributed to a swift downdraft in the United States stock market, and led to renewed concerns about the health of the long-running economic expansion.
By Thursday, Mr. Greenspan was backtracking. Noting that while a recession in 2007 is possible, he elaborated: “I don’t think it’s probable.” But his comments — and the global reaction — raise a larger question: If a recession were imminent, would Mr. Greenspan, or any less august economist, be able to forecast it?
The answer, based on recent experience, is a resounding no. “I don’t think we, as a profession, ever had an ability to forecast recessions,” said Jeffrey A. Frankel, professor of economics at the Kennedy School of Government at Harvard and a member of the National Bureau of Economic Research’s Business Cycle Dating Committee, the official arbiter of recessions. “It’s hard enough to know when a recession has started, looking at it with hindsight.”...
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On Monday, Mr. Greenspan, the former Federal Reserve chairman, said that “it is possible we can get a recession in the latter months of 2007.” His musings, to a group of executives in Hong Kong, were followed over the next 48 hours by a break in the frothy Chinese market and poor numbers on United States home sales and durable-goods orders. Together, the events contributed to a swift downdraft in the United States stock market, and led to renewed concerns about the health of the long-running economic expansion.
By Thursday, Mr. Greenspan was backtracking. Noting that while a recession in 2007 is possible, he elaborated: “I don’t think it’s probable.” But his comments — and the global reaction — raise a larger question: If a recession were imminent, would Mr. Greenspan, or any less august economist, be able to forecast it?
The answer, based on recent experience, is a resounding no. “I don’t think we, as a profession, ever had an ability to forecast recessions,” said Jeffrey A. Frankel, professor of economics at the Kennedy School of Government at Harvard and a member of the National Bureau of Economic Research’s Business Cycle Dating Committee, the official arbiter of recessions. “It’s hard enough to know when a recession has started, looking at it with hindsight.”...