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The Information Content of the Term Structure: Evidence for Germany

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  • Gerlach, Stefan

Abstract

This paper studies the usefulness of spreads between interest rates of different maturities as indicators of future inflation and real interest rates in Germany, using monthly data starting in 1967:1. The central results are twofold. First, the interest rate spreads considered contain considerable information about future changes in inflation, but no information about the time path of real interest rates. Second, the medium-term segment of the yield curve (spreads between 6 and 2 year rates, for instance) appears to be the most informative for future inflation. These results are similar to those obtained by Mishkin (1990b) and Jorian and Mishkin (1991).

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Bibliographic Info

Article provided by Springer in its journal Empirical Economics.

Volume (Year): 22 (1997)
Issue (Month): 2 ()
Pages: 161-79

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Handle: RePEc:spr:empeco:v:22:y:1997:i:2:p:161-79

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  1. Robert J. Shiller, 1980. "Alternative Tests of Rational Expectations Models: The Case of the Term Structure," NBER Working Papers 0563, National Bureau of Economic Research, Inc.
  2. Soderlind, P., 1995. "Forward Interest Rates as Indicators of Inflation Expectations," Papers 594, Stockholm - International Economic Studies.
  3. Mishkin, Frederic S, 1990. "The Information in the Longer Maturity Term Structure about Future Inflation," The Quarterly Journal of Economics, MIT Press, vol. 105(3), pages 815-28, August.
  4. Flavin, Marjorie A, 1983. "Excess Volatility in the Financial Markets: A Reassessment of the Empirical Evidence," Journal of Political Economy, University of Chicago Press, vol. 91(6), pages 929-56, December.
  5. Michael Woodford, 1994. "Nonstandard Indicators for Monetary Policy: Can Their Usefulness Be Judged from Forecasting Regressions?," NBER Chapters, in: Monetary Policy, pages 95-115 National Bureau of Economic Research, Inc.
  6. Frederic S. Mishkin, 1990. "What Does the Term Structure Tell Us About Future Inflation?," NBER Working Papers 2626, National Bureau of Economic Research, Inc.
  7. Robert J. Shiller & John Y. Campbell & Kermit L. Schoenholtz, 1983. "Forward Rates and Future Policy: Interpreting the Term Structure of Interest Rates," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 14(1), pages 173-224.
  8. Shiller, Robert J. & Huston McCulloch, J., 1990. "The term structure of interest rates," Handbook of Monetary Economics, in: B. M. Friedman & F. H. Hahn (ed.), Handbook of Monetary Economics, edition 1, volume 1, chapter 13, pages 627-722 Elsevier.
  9. Shiller, Robert J, 1979. "The Volatility of Long-Term Interest Rates and Expectations Models of the Term Structure," Journal of Political Economy, University of Chicago Press, vol. 87(6), pages 1190-1219, December.
  10. Jorion, Philippe & Mishkin, Frederic, 1991. "A multicountry comparison of term-structure forecasts at long horizons," Journal of Financial Economics, Elsevier, vol. 29(1), pages 59-80, March.
  11. N. Gregory Mankiw, 1986. "The Term Structure of Interest Rates Revisited," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 17(1), pages 61-110.
  12. Fama, Eugene F., 1984. "The information in the term structure," Journal of Financial Economics, Elsevier, vol. 13(4), pages 509-528, December.
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