The Predictive Power of Interest Rates Spread for Economic Activity

Raffaele Passaro ()
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Raffaele Passaro: University of Siena

Rivista di Politica Economica, 2007, vol. 97, issue 6, 81-112

Abstract: Since the 1980s, economists argued that the spread between the long-and short-term interest rates is a good predictor of future economic activity. Developing Estrella (2006) study, I investigate the ability of the interest rate spread to predict USA and Germany recessions using a probit model. The results show that the slope of the yield curve well predicts recession periods. I also compare the performance of the spread to the performance of the Chicago Federal Nation Index (CFNAI) — a credited leading indicator for the economic activity of the US — finding out that the yield-spread based forecast anticipates by several months the CFNAI forecast.

JEL-codes: C53 E37 E43 (search for similar items in EconPapers)
Date: 2007
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Persistent link: https://EconPapers.repec.org/RePEc:rpo:ripoec:v:97:y:2007:i:6:p:81-112

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