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The Term Spread and GDP Growth in Australia *
Author(s) -
POKE JACOB,
WELLS GRAEME
Publication year - 2009
Publication title -
economic record
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.365
H-Index - 42
eISSN - 1475-4932
pISSN - 0013-0249
DOI - 10.1111/j.1475-4932.2009.00546.x
Subject(s) - economics , term (time) , inflation (cosmology) , econometrics , monetary economics , macroeconomics , theoretical physics , quantum mechanics , physics
This article analyses the significance of the spread between short‐ and long‐term interest rates for predicting GDP growth in Australia, and whether the predictive relation deteriorates, as theory suggests, with the adoption of a credible inflation‐targeting regime. We test whether the significance of the term spread is sensitive to the inclusion of other conditioning variables which may be useful in forecasting GDP growth, and whether forecasting significance is due primarily to the expected change in short‐term interest rates, the term premium, or a combination of the two. There is some support for the proposition that the rationally‐expected term spread has become less significant with the adoption of inflation targeting.