The Yield Curve and the Prediction on the Business Cycle: a Var Analysis for the European Union
The literature on the yield curve deals with the capacity to predict the future inflation and the future real growth from the term structure of the interest rates. The aim of the paper is to verify this predictive power of the yield curve for the European Union at 16 countries in the 1995-2008 years. With this regard we propose two VAR models. The former is derived from the standard approach. The later is an extended version considering explicitly the macroeconomic effects of the risk premium. We propose the estimates of the models and their out-of-sample forecasts through both the European Union GDP (Gross Domestic Product) quarterly series and the European Union IPI (Industrial Production Index) monthly series. We show that our extended model performs better than the standard model and that the out-of-sample forecasts of the IPI monthly series are better than ones of the GDP quarterly series. Moreover the out-of-sample exercises seems us very useful because they show the jump out arising from Lehman Brother's unexpected crash and the becoming next fine tuning process.
Volume (Year): I (2010)
Issue (Month): 2 (December)
Pages: 183 - 209
|Contact details of provider:|| Web page: http://www.asers.eu/journals/tpref.html|
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- John B. Taylor, 1999. "Monetary Policy Rules," NBER Books, National Bureau of Economic Research, Inc, number tayl99-1, September.
When requesting a correction, please mention this item's handle: RePEc:srs:tpref1:5:v:1:y:2010:i:2:p:183-209. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Laura Ungureanu)
If references are entirely missing, you can add them using this form.