IDEAS home Printed from https://ideas.repec.org/a/wly/jforec/v43y2024i3p673-701.html
   My bibliography  Save this article

Downturns and changes in the yield slope

Author

Listed:
  • Mirko Abbritti
  • Juan Equiza
  • Antonio Moreno
  • Tommaso Trani

Abstract

We show that the slope of the sovereign yield curve predicts future economic activity not only through its level but also through its changes (or differences) over time. Our results with US data show that the additional inclusion of the changes of the yield slope in the traditional regressions significantly increases the explanatory power of the yield curve. Through the yield slope decomposition, we find that positive changes in both the risk‐neutral spread and the term premium increase the likelihood of recession in the next 3 or 12 months. Estimated linear equations that directly forecast economic activity confirm the predictive power of both components in the medium run. These predictive equations also identify the term premium as the relevant component of yield slope changes for medium‐run (3–12 months) forecasts. Our out‐of‐sample exercises show that the empirical models including both the level and the differences of the slope perform better than the models including only the yield slope level.

Suggested Citation

  • Mirko Abbritti & Juan Equiza & Antonio Moreno & Tommaso Trani, 2024. "Downturns and changes in the yield slope," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 43(3), pages 673-701, April.
    • Handle: RePEc:wly:jforec:v:43:y:2024:i:3:p:673-701
    DOI: 10.1002/for.3047
    as

    Download full text from publisher

    File URL: https://doi.org/10.1002/for.3047
    Download Restriction: no
    File URL: https://libkey.io/10.1002/for.3047?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wly:jforec:v:43:y:2024:i:3:p:673-701. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: http://www3.interscience.wiley.com/cgi-bin/jhome/2966 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.