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Does the yield spread predict real economic activity? : a multicountry analysis

Listed author(s):
  • Catherine Bonser-Neal
  • Timothy R. Morley
Registered author(s):

    This article evaluates the ability of the yield spread to forecast real economic activity in 11 industrial countries. The first section of this article defines the yield spread and explains why the spread may be a useful predictor of real economic activity. The second section describes the data and criteria used to evaluate the predictive power of the yield spread. The third section examines whether yield spreads have reliably forecast real economic activity in the 11 countries, using several measures of real economic activity and alternative forecast horizons. The empirical results indicate the yield spread is a statistically and economically significant predictor of real economic activity in several industrial countries besides the United States. In addition, the yield spread forecasting model generally outperforms two alternative forecasting models in predicting future real GDP growth.

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    File URL: http://www.kansascityfed.org/publicat/econrev/pdf/3q97bons.pdf
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    Article provided by Federal Reserve Bank of Kansas City in its journal Economic Review.

    Volume (Year): (1997)
    Issue (Month): Q III ()
    Pages: 37-53

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    Handle: RePEc:fip:fedker:y:1997:i:qiii:p:37-53:n:v.82no.3
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    1. Estrella, Arturo & Hardouvelis, Gikas A, 1991. " The Term Structure as a Predictor of Real Economic Activity," Journal of Finance, American Finance Association, vol. 46(2), pages 555-576, June.
    2. Michael J. Dueker, 1997. "Strengthening the case for the yield curve as a predictor of U.S. recessions," Review, Federal Reserve Bank of St. Louis, issue Mar, pages 41-51.
    3. Zuliu Hu, 1993. "The Yield Curve and Real Activity," IMF Working Papers 93/19, .
    4. Zuliu Hu, 1993. "The Yield Curve and Real Activity," IMF Staff Papers, Palgrave Macmillan, vol. 40(4), pages 781-806, December.
    5. Hansen, Lars Peter, 1982. "Large Sample Properties of Generalized Method of Moments Estimators," Econometrica, Econometric Society, vol. 50(4), pages 1029-1054, July.
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