| Business cycle analysis is a difficult endeavor. Policymakers are justifiably concerned over recessionary prospects for their respective economies. Being able to predict an incoming recession allows implementing measures to ameliorate the effects of downturns. The yield spread has been extensively used to analyze business cycles in high income economies. The probit model, the most widely utilized model for this type of analysis, enables estimation of the probability (between 0 and 1) that a recession will occur. This study evaluates the predictive power of the Mexico yield spread, the United States yield spread and the real exchange index to anticipate the probability of recession for eight of the most important northern border metropolitan economies in Mexico. |
