Does the Term Structure Predict Recessions? The International Evidence

Henri Bernard and Stefan Gerlach ()

International Journal of Finance & Economics, 1998, vol. 3, issue 3, pages 195-215

Abstract: Following Estrella and Hardouvelis (1991) and Estrella and Mishkin (1995), we study the ability of the term structure to predict recessions in eight countries. The results are fourfold. First, the yield curve predicts future recessions in all countries. Second, term spreads forecast recessions as much as 2 years ahead. Third, while German and US spreads are frequently significant in the regressions for the other countries, the added information is limited except in Japan and the UK. Fourth, while leading indicators contain information beyond that in term spreads, this information is only useful for forecasting recessions in the immediate future. These findings provide further evidence of the potential usefulness of term spreads as indicators for monetary policy purposes. Copyright @ 1998 by John Wiley & Sons, Ltd. All rights reserved.

Date: 1998
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Working Paper: Does the Term Structure Predict Recessions? The International Evidence (1998)
Working Paper: Does the term structure predict recessions? The international evidence (1996)
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