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The policy content of the yield curve slope

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  • Edward N. Gamber

Abstract

The slope of the yield curve, defined as the difference between 10 year and 3 month government bond yields, has been shown to predict both inflation and real economic activity. This paper investigates whether the forecasting ability of the yield curve slope is solely due to its relationship to monetary policy or whether it contains independent information about the future course of inflation and output growth. The predictive content of the yield curve slope is measured over three separate monetary policy regimes. The empirical results suggest that the yield curve slope contains independent predictive information about a variable only when the Federal Reserve does not react to changes in that variable.

Suggested Citation

  • Edward N. Gamber, 1996. "The policy content of the yield curve slope," Review of Financial Economics, John Wiley & Sons, vol. 5(2), pages 163-179.
    • Handle: RePEc:wly:revfec:v:5:y:1996:i:2:p:163-179
    DOI: 10.1016/S1058-3300(96)90013-0
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    1. Arturo Estrella & Anthony P. Rodrigues & Sebastian Schich, 2003. "How Stable is the Predictive Power of the Yield Curve? Evidence from Germany and the United States," The Review of Economics and Statistics, MIT Press, vol. 85(3), pages 629-644, August.

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