Unexpectedly Intriguing!
10 March 2008

There's been some confusion in a number of forums regarding our Recession Probability Track and what the probabilities it indicates really mean. Here's the inside scoop:

  1. Political Calculations' Recession Probability Track is based upon a recession prediction model developed by Jonathan Wright of the Federal Reserve Board. Our tool Reckoning the Odds of Recession, is based upon that model (details and links to the original source material are available in our post with the tool.)
  2. To calculate the probabilities graphically presented in the Recession Probability Track, we follow Wright's method of averaging the daily effective closing Federal Funds Rate and the spread between the 10-Year and 3-Month Constant Maturity Treasuries over a one-quarter period of time. The Recession Probability Track visualizes this probability over the four year period preceding the most recent calculated probability to illustrate trends over this time.
  3. Wright's method is designed to anticipate recessions roughly one-year ahead of when the NBER will find that one has occurred. That means our most recent data is now looking ahead to March 2009 (see chart below):
  4. Recession Probability Track, 08 March 2004 through 06 March 2008
  5. The probability of recession determined by this method that is most relevant to us today is the peak of 50% that occurred on 4 April 2007. That means that a year from right now is the period that the NBER is most likely to find to be in recession, should they make such a finding.

Finally, at this point, it appears that Wright's recession prediction model has worked pretty well as an early warning system. We'll keep updating it weekly if you promise to keep coming back to see where we're at!


About Political Calculations

Welcome to the blogosphere's toolchest! Here, unlike other blogs dedicated to analyzing current events, we create easy-to-use, simple tools to do the math related to them so you can get in on the action too! If you would like to learn more about these tools, or if you would like to contribute ideas to develop for this blog, please e-mail us at:

ironman at politicalcalculations.com

Thanks in advance!

Recent Posts

Stock Charts and News

Most Popular Posts
Quick Index

Site Data

This site is primarily powered by:

This page is powered by Blogger. Isn't yours?

CSS Validation

Valid CSS!

RSS Site Feed

AddThis Feed Button


The tools on this site are built using JavaScript. If you would like to learn more, one of the best free resources on the web is available at W3Schools.com.

Other Cool Resources

Blog Roll

Market Links

Useful Election Data
Charities We Support
Shopping Guides
Recommended Reading
Recently Shopped

Seeking Alpha Certified

Legal Disclaimer

Materials on this website are published by Political Calculations to provide visitors with free information and insights regarding the incentives created by the laws and policies described. However, this website is not designed for the purpose of providing legal, medical or financial advice to individuals. Visitors should not rely upon information on this website as a substitute for personal legal, medical or financial advice. While we make every effort to provide accurate website information, laws can change and inaccuracies happen despite our best efforts. If you have an individual problem, you should seek advice from a licensed professional in your state, i.e., by a competent authority with specialized knowledge who can apply it to the particular circumstances of your case.