An Empirical Study on Stabilities of the Predictive Role of the Yield Spread for Future Economic Activity and the Monetary Policy Stance in Japan
AbstractThis paper examines the relationship between the stability of the monetary policy reaction function and that of the predictive power of the yield spread for future economic activity using Japanese quarterly data between 1982:3 and 2005:2. We find that four structural changes occurred in the reaction function at 1985:4, 1991:2, 1994:4 and 2000:4 on the basis of Bai and Perron tests for unknown multiple breaks. The estimation results of the reaction function in the five subsamples show that, whereas the monetary policy reacts positively to the output gap before the mid-1990s, subsequently the reaction tends to decline and becomes almost nonexistent in the 2000s. The investigation of the predictive power of the yield spread for future GDP growth shows that before the mid-1990s, the spread contains information on future GDP growth, but that the spread loses its prediction power in the 2000s. This evidence shows that the stable monetary policy reaction to the output gap may cause the predictability of the yield spread for future GDP growth.
Download InfoTo our knowledge, this item is not available for download. To find whether it is available, there are three options:
1. Check below under "Related research" whether another version of this item is available online.
2. Check on the provider's web page whether it is in fact available.
3. Perform a search for a similarly titled item that would be available.
Bibliographic InfoPaper provided by Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP) in its series Discussion Papers in Economics and Business with number 12-17.
Length: 18 pages
Date of creation: Sep 2012
Date of revision:
monetary policy reaction function; the information in the yield spread on future economic activity; structural changes;
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 - - - Interest Rates: Determination, Term Structure, and Effects
- E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
You can help add them by filling out this form.
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: (Atsuko SUZUKI).
If references are entirely missing, you can add them using this form.