Balcilar, MehmetGupta, RanganSegnon, Mawuli K.2016-12-012016-12-012016-11Mehmet Balcilar, Rangan Gupta, and Mawuli Segnon (2016). The Role of Economic Policy Uncertainty in Predicting U.S. Recessions: A Mixed-frequency Markov-switching Vector Autoregressive Approach. Economics: The Open-Access, Open-Assessment E-Journal, 10 (2016-27): 1—20. http://dx.doi.org/10.5018/economics-ejournal.ja.2016-27.1864-604210.5018/economics-ejournal.ja.2016-27http://hdl.handle.net/2263/58329This paper analyzes the performance of the monthly economic policy uncertainty (EPU) index in predicting recessionary regimes of the (quarterly) U.S. GDP. In this regard, the authors apply a mixed-frequency Markov-switching vector autoregressive (MF-MS-VAR) model, and compare its in-sample and out-of-sample forecasting performances to those of a Markov-switching vector autoregressive model (MS-VAR, where the EPU is averaged over the months to produce quarterly values) and a Markov-switching autoregressive (MS-AR) model. Their results show that the MF-MS-VAR fits the different recession regimes, and provides out-of-sample forecasts of recession probabilities which are more accurate than those derived from the MS-VAR and MS-AR models. The results highlight the importance of using high-frequency values of the EPU, and not averaging them to obtain quarterly values, when forecasting recessionary regimes for the U.S. economy.en© Author(s) 2016. Licensed under the Creative Commons License - Attribution 4.0 International (CC BY 4.0).Business cyclesMixed frequencyMarkov-switching VAR modelsEconomic policy uncertainty (EPU)Mixed-frequency Markov-switching vector autoregressive (MF-MS-VAR) modelArticle