Does the Term Structure Predict Recessions? The International Evidence

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Does the Term Structure Predict Recessions? The International Evidence

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Bernard, Henri J
Gerlach, Stefan

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Stefan Gerlach

Abstract

Following Estrella and Hardouvelis (1991) and Estrella and Mishkin (1995a, b), we study the ability of the term structure to predict recessions in eight countries. The results are four-fold. First, the yield curve predicts future recessions in all countries. Second, term spreads forecast recessions as much as two years ahead. Third, while German and US spreads are frequently significant in the regressions for the other countries, the added information is limited, except in Japan and the United Kingdom. Fourth, while leading indicators contain information beyond that in term spreads, this information is only useful for forecasting recessions in the immediate future. These findings provide further evidence of the potential usefulness of term spreads as indicators for monetary policy purposes.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 1892.

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Date of creation: May 1998
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Handle: RePEc:cpr:ceprdp:1892

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Article
- Bernard, Henri & Gerlach, Stefan, 1998. "Does the Term Structure Predict Recessions? The International Evidence," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 3(3), pages 195-215, July. [Downloadable!] (restricted)
Paper
- Henri Bernard & Stefan Gerlach, 1996. "Does the term structure predict recessions? The international evidence," BIS Working Papers 37, Bank for International Settlements. [Downloadable!]

Find related papers by JEL classification:
E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Determination of Interest Rates; Term Structure of Interest Rates
E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit

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