Does the Term Structure Predict Australia's Future Output Growth?

Abbas Valadkhani
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Abbas Valadkhani: School of Economics and Information Systems, University of Wollogong, Wollogong, NSW

Economic Analysis and Policy (EAP), 2004, vol. 34, issue 2, pages 121-44

Abstract: The predictive power of the term structure of interest rates and four leading indicators for real output growth is examined using quarterly time series. Results are consistent with studies for France, Germany, the UK and Australia. The significance of the interest rate spread is robust to the inclusion of four other predictors. The annualised interest rate spread between 10-year Treasury bonds and 90-day bank bills explains 26 per cent of Australia's future output growth. It is found that the interest rate spread of Australia's major trading partners and an ABS composite leading indicator provide significant predictive power when the forecasting horizon is greater than 6 quarters. The results indicate that quarterly growth rates of Ml and the S&P/ASX 200 share price index are useful predictors of Australia's GDP growth when forecasting horizons are less than 10 (or 12) quarters.

Keywords: Growth; Interest Rates; Interest; Output; Term Structure of Interest Rates (search for similar items in EconPapers)
JEL-codes: E23 E43 E44 O47 (search for similar items in EconPapers)
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