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The Predictive Power of the User Cost Spread for Economic Recession in China and the US

Author

Listed:
  • Dongfeng Chang

    () (School of Economics, Shandong University, Jinan 250100, Shandong, China)

  • Ryan S. Mattson

    () (The Center for Financial Stability, New York, NY 10036, USA)

  • Biyan Tang

    () (University of Massachusetts Dartmouth, Economics Department, North Dartmouth, MA 02747-2300, USA)

Abstract

The predictive power of the yield curve slope, or the yield spread is well established in the United States (US) and European Union (EU) countries since 1998. However, there exists a gap in the literature on the predictive power of the yield spread on the Chinese economy. This paper provides a different leading recession indicator using the Chinese and US economy as comparative examples: the user cost spread, being the difference of the opportunity costs of holding government securities of different maturities. We argue that the user cost spread, based on the Divisia monetary aggregate data like the ones produced by the Center for Financial Stability, provides improved predictive ability and a better intuitive explanation based on changes in the user cost price of holding bonds.

Suggested Citation

  • Dongfeng Chang & Ryan S. Mattson & Biyan Tang, 2019. "The Predictive Power of the User Cost Spread for Economic Recession in China and the US," International Journal of Financial Studies, MDPI, Open Access Journal, vol. 7(2), pages 1-12, June.
  • Handle: RePEc:gam:jijfss:v:7:y:2019:i:2:p:34-:d:240702
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    References listed on IDEAS

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    More about this item

    Keywords

    Divisia monetary aggregates; user cost spread; recession; China; yield spread;

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • G2 - Financial Economics - - Financial Institutions and Services
    • G3 - Financial Economics - - Corporate Finance and Governance
    • F2 - International Economics - - International Factor Movements and International Business
    • F3 - International Economics - - International Finance
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission

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