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The Term Spread and GDP Growth in Australia

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Author Info
JACOB POKE
GRAEME WELLS

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Abstract

This article analyses the significance of the spread between short- and long-term interest rates for predicting GDP growth in Australia, and whether the predictive relation deteriorates, as theory suggests, with the adoption of a credible inflation-targeting regime. We test whether the significance of the term spread is sensitive to the inclusion of other conditioning variables which may be useful in forecasting GDP growth, and whether forecasting significance is due primarily to the expected change in short-term interest rates, the term premium, or a combination of the two. There is some support for the proposition that the rationally-expected term spread has become less significant with the adoption of inflation targeting. Copyright © 2009 The Economic Society of Australia.

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Article provided by The Economic Society of Australia in its journal Economic Record.

Volume (Year): 85 (2009)
Issue (Month): 269 (06)
Pages: 121-131
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Handle: RePEc:bla:ecorec:v:85:y:2009:i:269:p:121-131

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  1. Newey, Whitney K & West, Kenneth D, 1987. "A Simple, Positive Semi-definite, Heteroskedasticity and Autocorrelation Consistent Covariance Matrix," Econometrica, Econometric Society, vol. 55(3), pages 703-08, May. [Downloadable!] (restricted)
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  2. James H. Stock & Mark W. Watson, 2003. "Forecasting Output and Inflation: The Role of Asset Prices," Journal of Economic Literature, American Economic Association, vol. 41(3), pages 788-829, September.
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  3. C. Karfakis & D. Moschos, . "The Information Content of the Yield Curve in Australia," Working Papers 185, University of Sydney, Department of Economics.
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  4. Jonathan H. Wright, 2006. "The yield curve and predicting recessions," Finance and Economics Discussion Series 2006-07, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
  5. Philip Lowe, 1992. "The Term Structure of Interest Rates, Real Activity and Inflation," RBA Research Discussion Papers rdp9204, Reserve Bank of Australia. [Downloadable!]
  6. Glenn D. Rudebusch & Brian P. Sack & Eric T. Swanson, 2006. "Macroeconomic implications of changes in the term premium," Working Paper Series 2006-46, Federal Reserve Bank of San Francisco. [Downloadable!]
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  7. Plosser, Charles I. & Geert Rouwenhorst, K., 1994. "International term structures and real economic growth," Journal of Monetary Economics, Elsevier, vol. 33(1), pages 133-155, February. [Downloadable!] (restricted)
  8. Harvey, Campbell R., 1988. "The real term structure and consumption growth," Journal of Financial Economics, Elsevier, vol. 22(2), pages 305-333, December. [Downloadable!] (restricted)
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This page was last updated on 2009-11-28.

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