IDEAS home Printed from https://ideas.repec.org/p/nbr/nberwo/3550.html
   My bibliography  Save this paper

Yield Curve

Author

Listed:
  • Frederic S. Mishkin

Abstract

This paper provides a brief survey of the relationship between the yield curve and future changes in interest rates and inflation. The expectations hypothesis of the term structure indicates .that when the yield curve is upward sloping, future short-term and long-term interest rates are expected to rise. Empirical evidence finds that as predicted by the expectations hypothesis, yield spreads are positively correlated with future changes in short-term interest rates, particularly at long horizons. However, yield spreads are negatively correlated with next period's change in long-term interest rates, the opposite prediction of the expectations hypothesis. Empirical evidence also suggests that the yield curve has almost no ability to forecast future inflation changes for short horizons: however, at horizons of a year or greater, the yield curve contains a great deal of information about the future path of inflation.

Suggested Citation

  • Frederic S. Mishkin, 1990. "Yield Curve," NBER Working Papers 3550, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:3550
    Note: ME
    as

    Download full text from publisher

    File URL: http://www.nber.org/papers/w3550.pdf
    Download Restriction: no

    References listed on IDEAS

    as
    1. Huizinga, John & Mishkin, Frederic S., 1986. "Monetary policy regime shifts and the unusual behavior of real interest rates," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 24(1), pages 231-274, January.
    2. N. Gregory Mankiw & Lawrence H. Summers, 1984. "Do Long-Term Interest Rates Overreact to Short-Term Interest Rates?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 15(1), pages 223-248.
    3. Mishkin, Frederic S., 1990. "What does the term structure tell us about future inflation?," Journal of Monetary Economics, Elsevier, vol. 25(1), pages 77-95, January.
    4. Nelson, Charles R & Schwert, G William, 1977. "Short-Term Interest Rates as Predictors of Inflation: On Testing the Hypothesis That the Real Rate of Interest is Constant," American Economic Review, American Economic Association, vol. 67(3), pages 478-486, June.
    5. Shiller, Robert J. & Huston McCulloch, J., 1990. "The term structure of interest rates," Handbook of Monetary Economics,in: B. M. Friedman & F. H. Hahn (ed.), Handbook of Monetary Economics, edition 1, volume 1, chapter 13, pages 627-722 Elsevier.
    6. Modigliani, Franco & Shiller, Robert J, 1973. "Inflation, Rational Expectations and the Term Structure of Interest Rates," Economica, London School of Economics and Political Science, vol. 40(157), pages 12-43, February.
    7. Fama, Eugene F., 1984. "The information in the term structure," Journal of Financial Economics, Elsevier, vol. 13(4), pages 509-528, December.
    8. Robert J. Shiller & John Y. Campbell & Kermit L. Schoenholtz, 1983. "Forward Rates and Future Policy: Interpreting the Term Structure of Interest Rates," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 14(1), pages 173-224.
    9. Blanchard, Olivier J, 1984. "The Lucas Critique and the Volcker Deflation," American Economic Review, American Economic Association, vol. 74(2), pages 211-215, May.
    10. Campbell, John Y & Shiller, Robert J, 1987. "Cointegration and Tests of Present Value Models," Journal of Political Economy, University of Chicago Press, vol. 95(5), pages 1062-1088, October.
    11. John Y. Campbell & Robert J. Shiller, 1991. "Yield Spreads and Interest Rate Movements: A Bird's Eye View," Review of Economic Studies, Oxford University Press, vol. 58(3), pages 495-514.
    12. Fama, Eugene F & Bliss, Robert R, 1987. "The Information in Long-Maturity Forward Rates," American Economic Review, American Economic Association, vol. 77(4), pages 680-692, September.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Harald Grech, 2004. "What Do German Short-Term Interest Rates Tell Us About Future Inflation?," Working Papers 94, Oesterreichische Nationalbank (Austrian Central Bank).
    2. Ivan Paya & Kent Matthews, 2004. "Term spread and real economic activity in Korea: was the crisis predictable?," Applied Economics Letters, Taylor & Francis Journals, vol. 11(13), pages 797-801.
    3. Katerina Simons, 1993. "Interest rate structure and the credit risk of swaps," New England Economic Review, Federal Reserve Bank of Boston, issue Jul, pages 23-34.
    4. Juha Ilmari Seppala, 2000. "The Term Structure of Real Interest Rates: Theory and Evidence from the U.K. Index-Linked Bonds," Econometric Society World Congress 2000 Contributed Papers 0245, Econometric Society.

    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:nbr:nberwo:3550. 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: (). General contact details of provider: http://edirc.repec.org/data/nberrus.html .

    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.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with 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.

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

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.