Does The Term Structure Predict Australia’S Future Output Growth?
AbstractThis paper examines whether the term structure of interest rates provides predictive power for real output growth using quarterly time series data from 1980:1 to 2002:2. The empirical results are consistent with previous studies undertaken for France, Germany and the UK as well as earlier Australian works. It is found that a 10 per cent increase in the interest rate spread between the 10-year Treasury bond and the 90-day bank bill results in approximately 4 per cent rise in GDP growth over the succeeding seven-nine quarters. This result is robust to the inclusion of two other relevant predictors in the accumulated future growth equation, namely the growth rate of M1, and the growth rate of the S&P/ASX 200 share price index. It is also argued that after the US, the interest rate spread possesses relatively more predictive power for Australian GDP growth than those for France, Germany and the UK.
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Bibliographic InfoPaper provided by School of Economics and Finance, Queensland University of Technology in its series School of Economics and Finance Discussion Papers and Working Papers Series with number 139.
Date of creation: 20 Feb 2003
Date of revision:
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- Valadkhani, Abbas, 2004. "Does the Term Structure Predict Australia's Future Output Growth?," Economic Analysis and Policy (EAP), Queensland University of Technology (QUT), School of Economics and Finance, vol. 34(2), pages 121-44, September.
- E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
- 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
- O47 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Measurement of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
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