Does the yield spread predict real economic activity? : a multicountry analysis
AbstractThis article evaluates the ability of the yield spread to forecast real economic activity in 11 industrial countries. The first section of this article defines the yield spread and explains why the spread may be a useful predictor of real economic activity. The second section describes the data and criteria used to evaluate the predictive power of the yield spread. The third section examines whether yield spreads have reliably forecast real economic activity in the 11 countries, using several measures of real economic activity and alternative forecast horizons. The empirical results indicate the yield spread is a statistically and economically significant predictor of real economic activity in several industrial countries besides the United States. In addition, the yield spread forecasting model generally outperforms two alternative forecasting models in predicting future real GDP growth.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoArticle provided by Federal Reserve Bank of Kansas City in its journal Economic Review.
Volume (Year): (1997)
Issue (Month): Q III ()
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Andrea Nobili, 2005. "Forecasting Output Growth And Inflation In The Euro Area: Are Financial Spreads Useful?," Temi di discussione (Economic working papers) 544, Bank of Italy, Economic Research and International Relations Area.
- Rajan Goyal & K. Kanagasabapathy, 2002. "Yield Spread as a Leading Indicator of Real Economic Activity-- An Empirical Exercise on the Indian Economy," IMF Working Papers 02/91, International Monetary Fund.
- Arnaud Mehl, 2009.
"The Yield Curve as a Predictor and Emerging Economies,"
Open Economies Review,
Springer, vol. 20(5), pages 683-716, November.
- Mehl, Arnaud, 2006. "The yield curve as a predictor and emerging economies," BOFIT Discussion Papers 18/2006, Bank of Finland, Institute for Economies in Transition.
- Mehl, Arnaud, 2006. "The yield curve as a predictor and emerging economies," Working Paper Series 0691, European Central Bank.
- Luis Eduardo Arango & Luz Adriana Flórez & Angélica María Arosemena, .
"El Tramo Corto de la Estructura a Plazo como Predictor de Expectativas de la Actividad Económica en Colombia,"
Borradores de Economia
279, Banco de la Republica de Colombia.
- Luis E Arango & Luz Adriana Flórez & Angélica M Arosemena, 2005. "El Tramo Corto de la Estructura a Plazo como Predictor de Expectativas de la Actividad Económica en Colombia," Latin American Journal of Economics-formerly Cuadernos de Economía, Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 42(125), pages 79-101.
- Luis Eduardo Arango & Luz Adriana Flórez & Angélica María Arosemena, 2003. "El tramo corto de la estructura a plazo como predictor de expectativas de la actividad económica en Colombia," BORRADORES DE ECONOMIA 002559, BANCO DE LA REPÚBLICA.
- Benati, Luca & Goodhart, Charles, 2007.
"Investigating time-variation in the marginal predictive power of the yield spread,"
Working Paper Series
0802, European Central Bank.
- Benati, Luca & Goodhart, Charles, 2008. "Investigating time-variation in the marginal predictive power of the yield spread," Journal of Economic Dynamics and Control, Elsevier, vol. 32(4), pages 1236-1272, April.
- Nakaota, Hiroshi, 2005. "The term structure of interest rates in Japan: the predictability of economic activity," Japan and the World Economy, Elsevier, vol. 17(3), pages 311-326, August.
- Mario Reyna Cerecero & Diana Salazar Cavazos & Héctor Salgado Banda, 2008. "The Yield Curve and its Relation with Economic Activity: The Mexican Case," Working Papers 2008-15, Banco de México.
- Karunaratne, Neil Dias, 2002. "Predicting Australian Growth and Recession Via the Yield Curve," Economic Analysis and Policy (EAP), Queensland University of Technology (QUT), School of Economics and Finance, vol. 32(2), pages 233-250, June Spec.
- Michael Dotsey, 1998. "The predictive content of the interest rate term spread for future economic growth," Economic Quarterly, Federal Reserve Bank of Richmond, issue Sum, pages 31-51.
- James H. Stock & Mark W. Watson, 2001.
"Forecasting output and inflation: the role of asset prices,"
Federal Reserve Bank of San Francisco, issue Mar.
- 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.
- James H. Stock & Mark W. Watson, 2001. "Forecasting Output and Inflation: The Role of Asset Prices," NBER Working Papers 8180, National Bureau of Economic Research, Inc.
- Gomez-Biscarri, Javier, 2008. "Changes in the informational content of term spreads: Is monetary policy becoming less effective?," Journal of Economics and Business, Elsevier, vol. 60(5), pages 415-435.
- Georgopoulos, George & Hejazi, Walid, 2009. "Financial structure and the heterogeneous impact of monetary policy across industries," Journal of Economics and Business, Elsevier, vol. 61(1), pages 1-33.
- Esther Fernández Galar & Javier Gómez Biscarri, 2003. "Revisiting the Ability of Interest Rate Spreads to Predict Recessions: Evidence for a," Faculty Working Papers 04/03, School of Economics and Business Administration, University of Navarra.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Lu Dayrit).
If references are entirely missing, you can add them using this form.