The 10yr-3mo German spread, hitherto a pretty good predictor, inverted at 2022M12. Hitherto a pretty good predictor of German recessions (as labelled by ECRI), the implied probability was 70%, using a plain vanilla spread regression. From Chinn and Ferrara (2026) , here are estimated probabilities for a probit regression, estimated up to 2019M12 (black line in bottom panel), corresponding to the 10yr-3mo term spread. Figure 1: Top panel, 10yr-3mo German term spread, % (black); bottom panel, probit estimate for regression on spread, short rate, pre-pandemic (black line), full-sample (red), including expected change in unemployment (blue), including debt service ratio (green). ECRI defined peak-to-trough recession dates shaded light blue.
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