The Centre Matters for the Periphery of Europe: The Predictive Ability of a GZ-Type Spread for Economic Activity in Europe
AbstractThis paper examines whether information from bond markets provides a reliable signal for future economic activity in Europe. It evaluates the marginal predictive content and economic significance of a risk-adjusted yield credit spread in five European countries from the early 1990s to the recent past. The inclusion of this bond yield spread improves markedly the goodness of fit of the forecasting equation for economic activity in countries on the European periphery. The within-sample forecasting ability of the GZ-spread is remarkable, both over the whole sample period and a sub-sample period marking the effective beginning of the Economic and Monetary Union of Europe in 1999. Its effect on economic activity is felt particularly during the 2007-12 Crisis period.
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Bibliographic InfoPaper provided by University of Canterbury, Department of Economics and Finance in its series Working Papers in Economics with number 13/29.
Length: 35 pages
Date of creation: 01 Sep 2013
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Find related papers by JEL classification:
- E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
- E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
- G1 - Financial Economics - - General Financial Markets
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-12-06 (All new papers)
- NEP-EEC-2013-12-06 (European Economics)
- NEP-FOR-2013-12-06 (Forecasting)
- NEP-MAC-2013-12-06 (Macroeconomics)
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