New Business Index Relies Solely on Data to Predict Recessions

A new business index developed by MIT Sloan Senior Lecturer Mark Kritzman and others relies solely on data to make predictions on recessions. According to MIT Sloan School of Management, “The study — based on data leading up to November 2019 and conducted by Kritzman and co-authors William Kinlaw and David Turkington, both of State Street Associates — used a formula called the Mahalanobis distance to measure current economic conditions to previous episodes of robust growth and recession.”

Mark Kritzman is quoted as saying “the new index of the business cycle is a reliable indicator because it examines historical periods of recession and robust growth, where there’s plenty of valuable information to pull from. In addition, the index explicitly accounts for the interaction of the four economic variables from which it is constructed (industrial production, nonfarm payrolls, stock market return, and the slope of the yield curve).”

The full study is entitled “A New Index of the Business Cycle.”

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