Dear all except CS, Michael P. told me that the article I mentioned earlier is not at the address I said it was. If you have any interest, try this link:
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=900940 It is there now. According to my model, for a flat term structure, where the slope of the yield curve is measured as the difference between the 10-Year and 3-Month CMT yields, the 12-Month ahead likelihood of a US recession as signaled by the slope of the yield curve (and by some other "simple external" stochastic covariates) is about 37%, with some small errors. Moreover, my model is more conservative than the ones employed by the Federal Reserve Bank of New York researchers who published many papers on this. I tell you this much: if someone told me that conditional on its maintenance record a plane I am about to take may crash with that probability, no one on earth can convince me to take that plane. In December 2005 the slope of the yield curve as measured above was 8 basis points or 0.08%, in January 2006, 3 basis points or 0.03%, whereas in February, 9 basis points or 0.09%. You can check that from the FED St. Louis, FRED database, which is here: http://research.stlouisfed.org/fred2 Best, Sabri
