Forecasting recessions: the puzzle of the enduring power of the yield curve
AbstractWe show that professional forecasters have essentially no ability to predict future recessions a few quarters ahead. This is particularly puzzling because, for at least the past two decades, researchers have provided much evidence that the yield curve, specifically the spread between long- and short-term interest rates, does contain useful information at that forecast horizon for predicting aggregate economic activity and, especially, for signaling future recessions. We document this puzzle and suggest that forecasters have generally placed too little weight on yield curve information when projecting declines in the aggregate economy.
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Bibliographic InfoPaper provided by Federal Reserve Bank of San Francisco in its series Working Paper Series with number 2007-16.
Date of creation: 2007
Date of revision:
Other versions of this item:
- Rudebusch, Glenn D. & Williams, John C., 2009. "Forecasting Recessions: The Puzzle of the Enduring Power of the Yield Curve," Journal of Business & Economic Statistics, American Statistical Association, vol. 27(4), pages 492-503.
- NEP-ALL-2007-08-27 (All new papers)
- NEP-CBA-2007-08-27 (Central Banking)
- NEP-FOR-2007-08-27 (Forecasting)
- NEP-MAC-2007-08-27 (Macroeconomics)
- NEP-MON-2007-08-27 (Monetary Economics)
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