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Does the Term Structure Predict Australia's Future Output Growth?

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Author Info
Valadkhani, Abbas (School of Economics and Information Systems, University of Wollogong, Wollogong, NSW)
Abstract

The predictive power of the term structure of interest rates and four leading indicators for real output growth is examined using quarterly time series. Results are consistent with studies for France, Germany, the UK and Australia. The significance of the interest rate spread is robust to the inclusion of four other predictors. The annualised interest rate spread between 10-year Treasury bonds and 90-day bank bills explains 26 per cent of Australia's future output growth. It is found that the interest rate spread of Australia's major trading partners and an ABS composite leading indicator provide significant predictive power when the forecasting horizon is greater than 6 quarters. The results indicate that quarterly growth rates of Ml and the S&P/ASX 200 share price index are useful predictors of Australia's GDP growth when forecasting horizons are less than 10 (or 12) quarters.

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

Volume (Year): 34 (2004)
Issue (Month): 2 (September)
Pages: 121-44
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Handle: RePEc:eap:articl:v:34:y:2004:i:2:p:121-44

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Related research
Keywords: Growth; Interest Rates; Interest; Output; Term Structure of Interest Rates;

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Find related papers by JEL classification:
E23 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Production
E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Determination of Interest Rates; Term Structure of Interest Rates
E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
O47 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Measurement of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

References listed on IDEAS
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    Other versions:
  6. Michael Dueker, 1997. "Strengthening the case for the yield curve as a predictor of U.S. recessions," Review, Federal Reserve Bank of St. Louis, issue Mar, pages 41-51. [Downloadable!]
  7. Layton, Allan P, 1997. "Do Leading Indicators Really Predict Australian Business Cycle Turning Points?," The Economic Record, The Economic Society of Australia, vol. 73(222), pages 258-69, September.
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    Other versions:
  11. Denis Kwiatkowski & Peter C.B. Phillips & Peter Schmidt, 1991. "Testing the Null Hypothesis of Stationarity Against the Alternative of a Unit Root: How Sure Are We That Economic Time Series Have a Unit Root?," Cowles Foundation Discussion Papers 979, Cowles Foundation, Yale University. [Downloadable!]
    Other versions:
  12. Estrella, Arturo & Mishkin, Frederic S., 1997. "The predictive power of the term structure of interest rates in Europe and the United States: Implications for the European Central Bank," European Economic Review, Elsevier, vol. 41(7), pages 1375-1401, July. [Downloadable!] (restricted)
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