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Predicting Economic Recessions

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arunkumartelidevulapalli1
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2 views20 pages

Predicting Economic Recessions

Uploaded by

arunkumartelidevulapalli1
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Predicting Economic Recessions

Using LSTM Neural Networks


Recession Analysis
• A Recession is an economic situation that
arrives when the circulation of money in the
economy is low for two consecutive quarters.
• When the circulation of money is low, it means
people are not spending money in the market.
• When people don’t spend money, businesses
face losses, which results in an economic
slowdown and layoffs, which we have already
heard about in 2023.
Agenda
• The agenda of a recession analysis involves
systematically examining the causes,
characteristics, and effects of a recession.
• Typically with the goal of understanding its impact
on the economy and developing strategies to
mitigate future downturns.
• This helps in systematically understanding a
recession’s causes and consequences while offering
actionable insights for recovery and future
resilience
Methodologies

Data Preprocessing
Time Series Sequence Creation
Train-Test Split
LSTM Model Architecture
Project Overview
• The primary goal of this project is to develop a
machine learning model using Long Short-Term
Memory (LSTM) neural networks to predict economic
recessions based on key economic indicators such as
GDP, Unemployment Rate, and Inflation.
• This project leverages time series forecasting
techniques to capture patterns and trends in
historical economic data, enabling the model to
forecast future recessions.
Objectives
• Identify the Causes of the Recession
• Assess the Economic Impact
• Understand the Social and Employment Effects
• Provide Forecasts and Future Outlook
Execution
• Importing Libraries:

import numpy as np
import pandas as pd
from sklearn.preprocessing import MinMaxScaler
from tensorflow.keras.models import Sequential
from tensorflow.keras.layers import LSTM, Dense

• numpy and pandas for handling data.


• MinMaxScaler for normalizing the features.
• Sequential, LSTM, and Dense from Keras to build and train
the LSTM model
• Loading the Dataset:

data = pd.read_csv('economic_data.csv')

• Loads the dataset containing economic


indicators (GDP, Unemployment, Inflation) and
the target variable (Recession) into a
DataFrame.
Dataset: “ economic_data.csv “
• Selecting Features and Target

features = data[['GDP', 'Unemployment', 'Inflation']]


target = data['Recession'] # 1 if recession, 0 if no recession

• Selects input features (GDP, Unemployment,


Inflation) and the target variable (Recession)
for prediction.
• Scaling the Data

scaler = MinMaxScaler() scaled_features =


scaler.fit_transform(features)

• Normalizes the features to a range between 0


and 1, which helps improve the LSTM model's
training performance.
• Creating Time Series Sequences:

def create_sequences(data, target, time_steps=10):


X, y = [], []
for i in range(len(data) - time_steps):
X.append(data[i:i + time_steps])
y.append(target[i + time_steps])
return np.array(X), np.array(y)

• Defines a function to generate time series


sequences. Each sequence contains 10 consecutive
data points, which the model will use to predict the
next step (recession).
• Generate Sequences for LSTM:

time_steps = 10
X, y = create_sequences
(scaled_features, target, time_steps)

• Generates the input sequences (X) and labels


(y) from the scaled features for time series
forecasting using a 10-step window.
• Splitting the Data into Train and Test Sets:

train_size = int(0.8 * len(X))


X_train, X_test = X[:train_size], X[train_size:]
y_train, y_test = y[:train_size], y[train_size:]

• Splits the data into training (80%) and testing


(20%) sets to evaluate the model's
performance.
• Building the LSTM Model:

model = Sequential()
model.add(LSTM(units=50, return_sequences=True,
input_shape=(time_steps, X_train.shape[2])))
model.add(LSTM(units=50))
model.add(Dense(1, activation='sigmoid'))

• Defines a sequential LSTM model:


• First LSTM layer with 50 units and return_sequences=True (to
pass output to the next LSTM layer).
• Second LSTM layer with 50 units.
• Final Dense layer with 1 neuron and sigmoid activation for
binary classification.
• Compiling the Model:

model.compile(optimizer='adam',
loss='binary_crossentropy', metrics=['accuracy'])

• Compiles the model using:


• Adam optimizer: Efficient for gradient-based
optimization.
• Binary cross-entropy loss: Suitable for binary
classification (recession or not).
• Accuracy: As a metric to evaluate performance.
• Training the Model:

model.fit(X_train, y_train, epochs=20, batch_size=32,


validation_split=0.2)

• Trains the LSTM model for 20 epochs, with a


batch size of 32, using 20% of the training data
as validation.
• Evaluating the Model:

loss, accuracy = model.evaluate(X_test, y_test)


print(f"Test Accuracy: {accuracy * 100:.2f}%")

• Evaluates the model on the test set and prints


the accuracy.
Results
• Performance: The model achieved a good
balance between training and testing
accuracy, indicating it effectively learned
patterns in the economic data.

• Training Accuracy
• Test Accuracy
• Validation Loss
Links
• Recessions are periods of economic
contraction having a significant impact on
various industries.

• Explore the dataset and code


Click here to access the GitHub repository
Thank You!

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