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The Predictive Power of the Yield Curve Across Countries and Time
Author(s) -
Chinn Menzie,
Kucko Kavan
Publication year - 2015
Publication title -
international finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.458
H-Index - 39
eISSN - 1468-2362
pISSN - 1367-0271
DOI - 10.1111/infi.12064
Subject(s) - predictive power , yield curve , economics , yield (engineering) , recession , sample (material) , econometrics , great recession , monetary economics , macroeconomics , interest rate , keynesian economics , philosophy , chemistry , materials science , epistemology , chromatography , metallurgy
In recent years, there has been renewed interest in the yield curve (or alternatively, the term premium) as a predictor of future economic activity. In this article, we re‐examine the evidence for this predictor for both the United States and other advanced economies. We examine the sensitivity of the results to the selection of countries, and to time periods. We find that the predictive power of the yield curve has deteriorated in the last half of the sample period, although there is evidence of a reversal in the lead‐up to the Great Recession. There is reason to believe that European country models perform better than those with non‐European countries when using more recent data. In addition, the yield curve proves to have predictive power even after accounting for other leading indicators of economic activity.