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Does the yield curve signal recessions? New evidence from an international panel data analysis

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  • Hasse, Jean-Baptiste
  • Lajaunie, Quentin

Abstract

In this paper, we reexamine the predictive power of the yield spread across countries and over time. Using a dynamic panel/dichotomous model framework and a unique dataset covering 13 OECD countries over the period 1975–2019, we empirically show that the yield spread signals recessions. This result is robust to different econometric specifications, controlling for recession risk factors and time sampling. Using a new cluster analysis methodology, we present empirical evidence of a partial homogeneity of the predictive power of the yield spread. Our results provide a valuable framework for monitoring economic cycles.

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  • Hasse, Jean-Baptiste & Lajaunie, Quentin, 2022. "Does the yield curve signal recessions? New evidence from an international panel data analysis," The Quarterly Review of Economics and Finance, Elsevier, vol. 84(C), pages 9-22.
    • Handle: RePEc:eee:quaeco:v:84:y:2022:i:c:p:9-22
    DOI: 10.1016/j.qref.2022.01.001
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    Cited by:

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    5. Jean-Baptiste Hasse, 2022. "Systemic risk: a network approach," Empirical Economics, Springer, vol. 63(1), pages 313-344, July.
    6. Jean-Baptiste Hasse, 2020. "Systemic Risk: a Network Approach," Working Papers halshs-02893780, HAL.

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    More about this item

    Keywords

    Yield spread; Recession; Panel binary model; Cluster analysis;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • C25 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions; Probabilities
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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