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Revisiting the Ability of Interest Rate Spreads to Predict Recessions: Evidence for a

  • Esther Fernández Galar

    ()

    (BBVA – Escuela de Finanzas)

  • Javier Gómez Biscarri

    ()

    (School of Economics and Business Administration, University of Navarra)

In this paper we examine the power of the interest rate spread and of other financial variables as predictors of economic recessions in Spain. The domestic term spread is found to have little information about future real activity. However, term spreads in big economies to which Spain is related, specifically Germany and the US, are found to have significant predicting power but at different time horizons. Both these findings are in line with the facts that the monetary policy of Spain has not been independent and that it has been conditioned by that of other big economies, most notably Germany.

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File URL: http://www.unav.es/facultad/econom/files/workingpapersmodule/@random437a048e3df62/1132243576_wp0403.pdf
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Paper provided by School of Economics and Business Administration, University of Navarra in its series Faculty Working Papers with number 04/03.

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Length: 45 pages pages
Date of creation: Jan 2003
Date of revision:
Handle: RePEc:una:unccee:wp0403
Contact details of provider: Web page: http://www.unav.es/facultad/econom

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  18. Davis, E Philip & Fagan, Gabriel, 1997. "Are Financial Spreads Useful Indicators of Future Inflation and Output Growth in EU Countries?," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 12(6), pages 701-14, Nov.-Dec..
  19. Arturo Estrella & Frederic S. Mishkin, 1996. "The yield curve as a predictor of U.S. recessions," Current Issues in Economics and Finance, Federal Reserve Bank of New York, vol. 2(Jun).
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  24. N. Valckx & M.J.K.de Ceuster & J. Annaert, 2003. "Is Financial Market Volatility Informative to Predict Recessions?," DNB Staff Reports (discontinued) 93, Netherlands Central Bank.
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