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Does the Yield Curve Predict Output?

Author

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  • Joseph G. Haubrich

    (Research Department, Federal Reserve Bank of Cleveland, Cleveland, Ohio 44101-1387, USA)

Abstract

Does the yield curve have the ability to predict output and recessions? At some times and in certain places, of course! But when and where, which aspects of the curve matter most, and which economic forces account for the predictive ability are matters of dispute. Over the years, an increasingly sophisticated set of tools, both statistical and theoretical, has addressed the issue. For the United States, an inverted yield curve, particularly when the spread between the yield on 10-year and 3-month Treasuries becomes negative, has been a robust indicator of recessions in the post-World War II period. The spread also predicts future real GDP growth for the United States, although the forecast ability varies by time period in ways that appear to depend on monetary policy. The evidence is less clear in other countries, but the yield curve shows some predictive ability for the United Kingdom and Germany, among others.

Suggested Citation

  • Joseph G. Haubrich, 2021. "Does the Yield Curve Predict Output?," Annual Review of Financial Economics, Annual Reviews, vol. 13(1), pages 341-362, November.
    • Handle: RePEc:anr:refeco:v:13:y:2021:p:341-362
    DOI: 10.1146/annurev-financial-100620-065648
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    Cited by:

    1. Bordo, Michael D. & Haubrich, Joseph G., 2022. "Some international evidence on the causal impact of the yield curve," Finance Research Letters, Elsevier, vol. 45(C).
    2. Petri Kuosmanen & Juuso Vataja, 2025. "Predictive Power of Key Financial Variables During the Unconventional Monetary Policy Era," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 44(3), pages 856-866, April.
    3. Cendejas Bueno, José Luis, 2023. "Recessions and flattening of the yield curve (1960–2021): A two-way road under a regime switching approach," The Quarterly Review of Economics and Finance, Elsevier, vol. 88(C), pages 8-20.
    4. Bordo, Michael D. & Haubrich, Joseph G., 2024. "Low interest rates and the predictive content of the yield curve," The North American Journal of Economics and Finance, Elsevier, vol. 71(C).
    5. Matteo Iacopini & Aubrey Poon & Luca Rossini & Dan Zhu, 2024. "A Quantile Nelson-Siegel model," Papers 2401.09874, arXiv.org, revised Jul 2025.
    6. Iqbal, Najaf & Umar, Zaghum & Shaoyong, Zhang & Sokolova, Tatiana, 2025. "Higher moments interaction between the US treasury yields, energy assets, and green cryptos: Dynamic analysis with portfolio implications," Energy Economics, Elsevier, vol. 141(C).

    More about this item

    Keywords

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    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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