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The dummy variable adopts an arbitrary convention that the turning point occurred at a specific date within the period.The arbitrary convention does not reflect any judgment on this issue by the NBER's Business Cycle Dating Committee.The key is to glean from the collective wisdom of reliable leading indicators a clear signal that the economy is headed for a turn.Macroeconomic indicators such as GDP (gross domestic product), investment spending, capacity utilization, household income, business profits, and inflation fall, while bankruptcies and the unemployment rate rise.This may be triggered by various events, such as a financial crisis, an external trade shock, an adverse supply shock or the bursting of an economic bubble.Governments usually respond to recessions by adopting expansionary macroeconomic policies, such as increasing money supply, increasing government spending and decreasing taxation.

The program was organized by Jim Stock and Lars Svensson.In the United Kingdom, it is defined as a negative economic growth for two consecutive quarters.Recessions generally occur when there is a widespread drop in spending (an adverse demand shock).In the United States, the Business Cycle Dating Committee of the National Bureau of Economic Research (NBER) is generally seen as the authority for dating US recessions.The NBER defines an economic recession as: "a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales." Almost universally, academics, economists, policy makers, and businesses defer to the determination by the NBER for the precise dating of a recession's onset and end.

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