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Do Foreign Yield Curves Predict U.S. Recessions and GDP Growth?

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  • RASHAD AHMED
  • MENZIE D. CHINN

Abstract

Foreign term spreads constructed from bond yields of non‐U.S. G‐7 constituents predict future U.S. recessions and foreign term spreads are stronger predictors of U.S. recessions occurring within the next year than U.S. term spreads. U.S. and foreign term spreads are both informative of the U.S. economy but over different horizons and for different components of economic activity. Smaller U.S. term spreads lead to smaller foreign term spreads and U.S. Dollar appreciation. Smaller foreign term spreads do not lead to significant U.S. Dollar depreciation but do lead to persistent declines in U.S. exports and foreign direct investment (FDI) flows into the United States. These findings are consistent with the proposition that foreign term spreads embed growth spillovers from the U.S. and the resulting Dollar strength and slowdown abroad spill back to the United States.

Suggested Citation

  • Rashad Ahmed & Menzie D. Chinn, 2025. "Do Foreign Yield Curves Predict U.S. Recessions and GDP Growth?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 57(8), pages 2075-2098, December.
    • Handle: RePEc:wly:jmoncb:v:57:y:2025:i:8:p:2075-2098
    DOI: 10.1111/jmcb.13164
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