On the Predictive Power of Interest Rates and Interest Rate Spreads
AbstractA number of interest rates and interest rate spreads have been found to be useful in prediction the course of the economy. We compare the predictive power of some of these suggested interest rate variables for nine indicators of real activity and the inflation rate. Our results are consistent with those of Stock and Watson (1989) and Friedman and Kuttner (1989), who found that the spread between the commercial paper rate and the Treasury bill rate has been a particularly good predictor. We present evidence that this spread is informative not so much because it is a measure of default risk (which has been the usual presumption), but because it is an indicator of the stance of monetary policy; for example, during the "credit crunches" of the l960s aid the 1970s, the commercial paper -- Treasury bill spread typically rose significantly. We also show that, possibly because of charges in monetary policy operating procedures aid in financial markets, this spread appears r to be a less reliable predictor than it used to be.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 3486.
Date of creation: Oct 1990
Date of revision:
Note: EFG ME
Contact details of provider:
Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
Web page: http://www.nber.org
More information through EDIRC
Other versions of this item:
- Ben S. Bernanke, 1990. "On the predictive power of interest rates and interest rate spreads," New England Economic Review, Federal Reserve Bank of Boston, issue Nov, pages 51-68.
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Robert B. Litterman & Laurence Weiss, 1983.
"Money, Real Interest Rates, and Output: A Reinterpretation of Postwar U.S. Data,"
NBER Working Papers
1077, National Bureau of Economic Research, Inc.
- Litterman, Robert B & Weiss, Laurence M, 1985. "Money, Real Interest Rates, and Output: A Reinterpretation of Postwar U.S. Data," Econometrica, Econometric Society, vol. 53(1), pages 129-56, January.
- Robert B. Litterman & Laurence M. Weiss, 1984. "Money, real interest rates, and output: a reinterpretation of postwar U.S. data," Staff Report 89, Federal Reserve Bank of Minneapolis.
- Sims, Christopher A, 1972. "Money, Income, and Causality," American Economic Review, American Economic Association, vol. 62(4), pages 540-52, September.
- Cook, Timothy & Hahn, Thomas, 1989. "The effect of changes in the federal funds rate target on market interest rates in the 1970s," Journal of Monetary Economics, Elsevier, vol. 24(3), pages 331-351, November.
- McCallum, Bennett T., 1983. "A reconsideration of Sims' evidence concerning monetarism," Economics Letters, Elsevier, vol. 13(2-3), pages 167-171.
This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page. reading list or among the top items on IDEAS.Access and download statisticsgeneral information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().
If references are entirely missing, you can add them using this form.