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Forecasting Recession In South Africa: A Comparison Of The Yield Curve And Other Economic Indicators

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  • Melvin muzi Khomo
  • Meshach jesse Aziakpono

Abstract

The paper uses the standard probit model proposed by Estrella and Mishkin (1996) , as well as the modified probit model suggested by Dueker (1997) , to examine the ability of the yield curve to predict recessions in South Africa, and compares its predictive power with other commonly used variables such as the growth rate of real money supply, changes in stock prices and the index of leading economic indicators. Compared with other indicators, real M3 growth does not provide much information about future recessions, whilst movements in the All-Share index provide information for up to 12 months but do not do better than the yield curve. The index of leading economic indicators outperforms the yield spread in the short run up to 4 months but the yield spread performs better at longer horizons. Copyright (c) 2007 The Authors; Journal compilation (c) Economic Society of South Africa 2007.

Suggested Citation

  • Melvin muzi Khomo & Meshach jesse Aziakpono, 2007. "Forecasting Recession In South Africa: A Comparison Of The Yield Curve And Other Economic Indicators," South African Journal of Economics, Economic Society of South Africa, vol. 75(2), pages 194-212, June.
  • Handle: RePEc:bla:sajeco:v:75:y:2007:i:2:p:194-212
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    References listed on IDEAS

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    1. Servaas BERG & Onelle BURGER, 2003. "Education And Socio-Economic Differentials: A Study Of School Performance In The Western Cape," South African Journal of Economics, Economic Society of South Africa, vol. 71(3), pages 496-522, September.
    2. Hanushek, Eric A. & Luque, Javier A., 2003. "Efficiency and equity in schools around the world," Economics of Education Review, Elsevier, vol. 22(5), pages 481-502, October.
    3. Anne Case & Angus Deaton, 1999. "School Inputs and Educational Outcomes in South Africa," The Quarterly Journal of Economics, Oxford University Press, vol. 114(3), pages 1047-1084.
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    Cited by:

    1. Njindan Iyke, Bernard, 2015. "On The Term Structure of South African Interest Rates: Cointegration and Threshold Adjustment," MPRA Paper 67681, University Library of Munich, Germany.
    2. Johannes Peyavali Sheefeni Sheefeni & Teresia Kaulihowa, 2016. "Examining the Relationship between Term Structure of Interest Rates and Economic Activity in Namibia," International Journal of Economics and Financial Research, Academic Research Publishing Group, vol. 2(9), pages 161-168, 09-2016.
    3. Goodness C. Aye & Christina Christou & Luis A. Gil-Alana & Rangan Gupta, 2016. "Forecasting the Probability of Recessions in South Africa: The Role of Decomposed Term-Spread and Economic Policy Uncertainty," Working Papers 201680, University of Pretoria, Department of Economics.
    4. Lumengo BONGA-BONGA, "undated". "Monetary Policy and Long Term Interest Rate in South Africa," EcoMod2009 21500016, EcoMod.

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