Related papers: Animal Spirits in America, April 2009
'Animal spirits' or confidence levels are heavily dependent on how current conditions compare to adaptation levels. In the US, with its highly flexible labor markets and weak safety nets, the unemployment rate seems to serve as a…
A two-variable model is developed to forecast the probability of recession in the U.S. economy. Like many others, the model uses data a year or more old to explain movements of a dichotomous dependent variable for recession. The innovation…
As Large Language Models (LLMs) become increasingly integrated into financial systems, understanding their behavioural properties is crucial. Do LLMs conform to the rational expectations paradigm, do they exhibit human-like "animal…
Modern macroeconomic models, particularly those grounded in Rational Expectation Dynamic Stochastic General Equilibrium (DSGE), operate under the assumption of fully rational decision-making. This paper examines the impact of behavioral…
Normal anxiety is considered an adaptive response to the possible presence of danger, but is susceptible to dysregulation. Anxiety disorders are prevalent at high frequency in contemporary human societies, yet impose substantial disability…
This paper investigates the impact of the adoption of generative AI on financial stability. We conduct laboratory-style experiments using large language models to replicate classic studies on herd behavior in trading decisions. Our results…
Most representative decision tree ensemble methods have been used to examine the variable importance of Treasury term spreads to predict US economic recessions with a balance of generating rules for US economic recession detection. A…
Nyman and Ormerod (2017) show that the machine learning technique of random forests has the potential to give early warning of recessions. Applying the approach to a small set of financial variables and replicating as far as possible a…
Historically, the economic recession often came abruptly and disastrously. For instance, during the 2008 financial crisis, the SP 500 fell 46 percent from October 2007 to March 2009. If we could detect the signals of the crisis earlier, we…
Predicting panic is of critical importance in many areas of human and animal behavior, notably in the context of economics. The recent financial crisis is a case in point. Panic may be due to a specific external threat, or self-generated…
Forecasting corporate financial distress increasingly requires capturing firms' adoption of transformative technologies such as artificial intelligence, yet model performance remains vulnerable to temporal distribution shifts as these…
Even at the beginning of 2008, the economic recession of 2008/09 was not being predicted. The failure to predict recessions is a persistent theme in economic forecasting. The Survey of Professional Forecasters (SPF) provides data on…
Animal behavior serves as a reliable indicator of the adaptation of organisms to their environment and their overall well-being. Through rigorous observation of animal actions and interactions, researchers and observers can glean valuable…
Modern macroeconomic theories were unable to foresee the last Great Recession and could neither predict its prolonged duration nor the recovery rate. They are based on supply-demand equilibria that do not exist during recessionary shocks.…
Using a comprehensive sample of 2,585 bankruptcies from 1990 to 2019, we benchmark the performance of various machine learning models in predicting financial distress of publicly traded U.S. firms. We find that gradient boosted trees…
We study the societal impact of pseudo-scientific assumptions for predicting the behavior of people in a straightforward application of machine learning to risk prediction in financial lending. This use case also exemplifies the impact of…
An annual well-being index constructed from thirteen socioeconomic factors is proposed in order to dynamically measure the mood of the US citizenry. Econometric models are fitted to the log-returns of the index in order to quantify its tail…
This study analyses the duration dependence of events that trigger volatility persistence in stock markets. Such events, in our context, are monthly spells of contiguous price decline or negative returns for the S&P500 stock market index…
Quantitative models are an important decision-making factor for policy makers and investors. Predicting an economic recession with high accuracy and reliability would be very beneficial for the society. This paper assesses machine learning…
Public finances are one of the fundamental mechanisms of economic governance that refer to the financial activities and decisions made by government entities to fund public services, projects, and operations through assets. In today's…