How Stable is the Forecasting Performance of the Yield Curve for Outpot Growth?
AbstractWe provide an extensive evaluation of the predictive performance of the U.S. yield curve for U.S. GDP growth by using a new test for forecast breakdown as well as a variety of in-sample and out-of-sample testing procedures. Empirical research over the past decades uncovered a strong predictive relationship between the yield curve and output growth. However, the parameter estimates that describe this empirical relationship were not stable over time. We document the existence of a forecast breakdown in this relationship over the past three decades, and find it relevant especially in the seventies and eighties. We also provide empirical support for the theoretical conjecture that the cause of the forecast failure is closely linked to changes in the monetary policy of the Fed.
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Bibliographic InfoPaper provided by Duke University, Department of Economics in its series Working Papers with number 05-08.
Length: 27 pages
Date of creation: 2005
Date of revision:
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Other versions of this item:
- Raffaella Giacomini & Barbara Rossi, 2006. "How Stable is the Forecasting Performance of the Yield Curve for Output Growth?," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 68(s1), pages 783-795, December.
- C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models
- C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
- C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-10-22 (All new papers)
- NEP-ECM-2005-10-22 (Econometrics)
- NEP-FMK-2005-10-22 (Financial Markets)
- NEP-FOR-2005-10-22 (Forecasting)
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