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The Yield Spread and Real Economic Activity: The Impact of Globalisation

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  • Hawtrey, K.M.

    (Division of Economic and Financial Studies, Macquarie University, Sydney)

Abstract

One of the enduring linkages between financial markets and the real economy is that the shape of the interest rate curve is seen as a good predictor of future output growth. However, little is known about the effect of globalisation on this relationship. This paper examines whether, in the wake of the internationalisation of the Australian economy during the past decade and a half, there is today an identifiable relationship between the foreign yield spread and Australian GDP growth. Using the US interest rate spread as a proxy for the world yield curve, a link is found to exist with Australian GDP growth. There is evidence the link has strengthened as the economy has seen greater exposure to globalisation.

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Bibliographic Info

Article provided by Queensland University of Technology (QUT), School of Economics and Finance in its journal Economic Analysis and Policy (EAP).

Volume (Year): 32 (2002)
Issue (Month): 2 (June Special Issue)
Pages: 203-219

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Handle: RePEc:eap:articl:v:32:y:2002:i:2:p:203-219

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  1. Estrella, Arturo & Hardouvelis, Gikas A, 1991. " The Term Structure as a Predictor of Real Economic Activity," Journal of Finance, American Finance Association, vol. 46(2), pages 555-76, June.
  2. Dickey, David A & Fuller, Wayne A, 1981. "Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root," Econometrica, Econometric Society, vol. 49(4), pages 1057-72, June.
  3. Joseph G. Haubrich & Ann M. Dombrosky, 1996. "Predicting real growth using the yield curve," Economic Review, Federal Reserve Bank of Cleveland, issue Q I, pages 26-35.
  4. 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.
  5. Sharon Kozicki, 1997. "Predicting real growth and inflation with the yield spread," Economic Review, Federal Reserve Bank of Kansas City, issue Q IV, pages 39-57.
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