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Strengthening the case for the yield curve as a predictor of U.S. recessions

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  • Michael Dueker

Abstract

Past experience has led financial market participants to believe that future interest rates will be closely related to the performance of the economy. If so, the shape of the yield curve ought to summarize the implicit economic forecasts of a broad range of bond traders. Previous research has demonstrated that, relative to carefully tailored forecasting variables such as the index of leading indicators, the yield curve is an excellent predictor of recessions. In this article, Michael Dueker shows that the predictive power of the yield curve does not diminish when examined in the context of econometric models with more sophisticated baseline forecasts.

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Bibliographic Info

Article provided by Federal Reserve Bank of St. Louis in its journal Review.

Volume (Year): (1997)
Issue (Month): Mar ()
Pages: 41-51

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Handle: RePEc:fip:fedlrv:y:1997:i:mar:p:41-51

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Related research

Keywords: Forecasting ; Recessions ; Government securities;

References

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  1. Benjamin M. Friedman & Kenneth N. Kuttner, 1991. "Why does the paper-bill spread predict real economic activity?," Working Paper Series, Macroeconomic Issues 91-16, Federal Reserve Bank of Chicago.
  2. Arturo Estrella & Gikas A. Hardouvelis, 1989. "The term structure as a predictor of real economic activity," Research Paper 8907, Federal Reserve Bank of New York.
  3. Engle, Robert F, 1982. "Autoregressive Conditional Heteroscedasticity with Estimates of the Variance of United Kingdom Inflation," Econometrica, Econometric Society, vol. 50(4), pages 987-1007, July.
  4. 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.
  5. Hamilton, James D., 1990. "Analysis of time series subject to changes in regime," Journal of Econometrics, Elsevier, vol. 45(1-2), pages 39-70.
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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Indian and Brazilian Yield Curves Invert, Hint at â??Monstrous Risksâ?
    by admin in HistorySquared on 2011-06-11 06:09:00
  2. Summary of Research on the Usefulness of using the Yield Curve in Macro Forecasting
    by admin in HistorySquared on 2011-02-10 17:51:54
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