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The Yield Spread and Real Economic Activity: The Impact of Globalisation

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  • Kim Hawtrey

    ()
    (Department of Economics, Macquarie University)

Abstract

One of the enduring linkages between financial markets and the real economy is that the shape of the interest rate curve is seen as a good predictor of future output growth. However, little is known about the effect of globalisation on this relationship. This paper examines whether, in the wake of the internationalisation of the Australian economy during the past decade and a half, there is today an identifiable relationship between the foreign yield spread and Australian GDP growth. Using the US interest rate spread as a proxy for the world yield curve, a link is found to exist with Australian GDP growth. There is evidence the link has strengthened as the economy has seen greater exposure to globalisation.

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File URL: http://www.econ.mq.edu.au/research/2001/THE%20YIELD%20SPREAD%20AND%20REAL%20ECONOMIC%20ACTIVITY.pdf
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Bibliographic Info

Paper provided by Macquarie University, Department of Economics in its series Research Papers with number 0110.

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Length: 23 pages.
Date of creation: Oct 2001
Date of revision:
Handle: RePEc:mac:wpaper:0110

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Postal: Sydney NSW 2109
Web page: http://www.econ.mq.edu.au/
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  1. Sharon Kozicki, 1997. "Predicting real growth and inflation with the yield spread," Economic Review, Federal Reserve Bank of Kansas City, issue Q IV, pages 39-57.
  2. Estrella, Arturo & Hardouvelis, Gikas A, 1991. " The Term Structure as a Predictor of Real Economic Activity," Journal of Finance, American Finance Association, vol. 46(2), pages 555-76, June.
  3. Catherine Bonser-Neal & Timothy R. Morley, 1997. "Does the yield spread predict real economic activity? : a multicountry analysis," Economic Review, Federal Reserve Bank of Kansas City, issue Q III, pages 37-53.
  4. Joseph G. Haubrich & Ann M. Dombrosky, 1996. "Predicting real growth using the yield curve," Economic Review, Federal Reserve Bank of Cleveland, issue Q I, pages 26-35.
  5. Plosser, Charles I. & Geert Rouwenhorst, K., 1994. "International term structures and real economic growth," Journal of Monetary Economics, Elsevier, vol. 33(1), pages 133-155, February.
  6. Dickey, David A & Fuller, Wayne A, 1981. "Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root," Econometrica, Econometric Society, vol. 49(4), pages 1057-72, June.
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