IDEAS home Printed from
   My bibliography  Save this paper

Changes in the Informational Content of the Spread: Is Monetary Policy Becoming Less Effective?


  • Javier Gómez

    () (IESE, Universidad de Navarra)


We examine how the predictive power of term spreads as predictors of economic recessions in Europe and the US has changed in the last two decades. In particular, we focus on the power of domestic and of US and German term spreads to predict real economic activity. Using a battery of methodologies that include endogenous changepoint detection we find that the predictive power of spreadtype variables has changed significantly after the 1980s: in the most advanced countries the domestic spread has lost its informative content in favor of the US spread, whereas in other, less developed countries, this informational content has appeared during the late 1980s. Other predictive variables examined are shown to add little information over term spreads. Given the theoretical arguments that support the predictive power, these findings suggest that domestic monetary policy may have become less effective with respect to real activity in the most developed countries of the sample.

Suggested Citation

  • Javier Gómez, 2007. "Changes in the Informational Content of the Spread: Is Monetary Policy Becoming Less Effective?," Faculty Working Papers 05/07, School of Economics and Business Administration, University of Navarra.
  • Handle: RePEc:una:unccee:wp0507

    Download full text from publisher

    File URL:
    Download Restriction: no

    References listed on IDEAS

    1. Atta-Mensah, Joseph & Tkacz, Greg, 1998. "Predicting Canadian Recessions Using Financial Variables: A Probit Approach," Staff Working Papers 98-5, Bank of Canada.
    2. Eric M. Leeper & Tao Zha, 2001. "Assessing simple policy rules: A view from a complete macroeconomic model," Economic Review, Federal Reserve Bank of Atlanta, issue Q4, pages 35-58.
    3. Arturo Estrella & Anthony P. Rodrigues, 1998. "Consistent covariance matrix estimation in probit models with autocorrelated errors," Staff Reports 39, Federal Reserve Bank of New York.
    4. Arturo Estrella & Anthony P. Rodrigues & Sebastian Schich, 2003. "How Stable is the Predictive Power of the Yield Curve? Evidence from Germany and the United States," The Review of Economics and Statistics, MIT Press, vol. 85(3), pages 629-644, August.
    5. Edward E. Leamer, 2001. "The Life Cycle of US Economic Expansions," NBER Working Papers 8192, National Bureau of Economic Research, Inc.
    Full references (including those not matched with items on IDEAS)

    More about this item


    Interest Rate Spread; Recession; Forecast; Europe;

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods


    Access and download statistics


    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:una:unccee:wp0507. 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: .

    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.