Measuring financial markets’ expectations of economic downturns in real time

Bulletin No. 264, article 2. In an economic environment marked by heightened uncertainty and rapid economic turnarounds, macroeconomic analysis relies heavily on econometric models designed to track and forecast changes in activity. These models, which rely primarily on indicators and surveys available on a monthly or quarterly basis, are not designed to incorporate shifts in the economic cycle in real time. Analysts therefore use financial variables that, in principle, continuously reflect market expectations. …