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The interest rate spread as a forecasting tool of greek industrial production

Author

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  • Gogas, Periklis
  • Pragkidis, Ioannis

Abstract

Several studies have established the predictive power of the yield curve, i.e.: the difference between long and short term bond rates, in terms of real economic activity, for the U.S. and various European countries. In this paper we use monthly data of the industrial production index of the Greek economy ranging from January 2000 to December 2008 and we calculate the year-to-year percentage change, while the European Central Bank’s euro area government benchmark bonds of various maturities are employed for the calculation of the yield spreads. We also augment the models tested with non monetary policy variables: the Greek unemployment rate and the FTSE-100 stock index returns. The methodology employed in the effort to forecast negative year-to-year changes in the industrial production index is a probit model of the inverse cumulative distribution function of the standard distribution, using several formal forecasting and goodness of fit evaluation tests. The results show that the yield curve augmented with the composite stock index has significant forecasting power in terms of the industrial production in Greece.

Suggested Citation

  • Gogas, Periklis & Pragkidis, Ioannis, 2010. "The interest rate spread as a forecasting tool of greek industrial production," MPRA Paper 22148, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:22148
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    File URL: https://mpra.ub.uni-muenchen.de/22148/1/MPRA_paper_22148.pdf
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    References listed on IDEAS

    as
    1. Hodrick, Robert J & Prescott, Edward C, 1997. "Postwar U.S. Business Cycles: An Empirical Investigation," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 29(1), pages 1-16, February.
    2. Cogley, Timothy & Nason, James M., 1995. "Effects of the Hodrick-Prescott filter on trend and difference stationary time series Implications for business cycle research," Journal of Economic Dynamics and Control, Elsevier, vol. 19(1-2), pages 253-278.
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    More about this item

    Keywords

    yield spreads; industrial production; forecast; probit; greece;

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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