Zero Lower Bound and Indicator Properties of Interest Rate Spreads

Jari Hännikäinen

No 1390, Working Papers from Tampere University, Faculty of Management and Business, Economics

Abstract: This paper examines the predictive power of interest rate spreads when the zero lower bound restriction for monetary policy is binding. We show that this restriction has a major e ect on the predictive content of some interest rate spreads. Most importantly, we nd that the term spread outperforms the AR benchmark in real-time forecasting exercise when the short-term rate is at the zero lower bound, but not otherwise. On the other hand, our results indicate that the di erence between the 30-year mortgage rate and ten-year Treasury bond rate is a robust predictor of future economic activity.

Keywords: business fl uctuations; forecasting; interest rate spreads; monetary policy; zero lower bound (search for similar items in EconPapers)
JEL-codes: C53 E32 E44 E52 E58 (search for similar items in EconPapers)
Pages: 23 pages
Date: 2013-10
New Economics Papers: this item is included in nep-cba, nep-for and nep-mac
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http://urn.fi/URN:ISBN:978-951-44-9246-4 First version, 2013 (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:tam:wpaper:1390

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