Does the Term Structure Predict Recessions? The International Evidence

Henri J Bernard and Stefan Gerlach ()

No 1892, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: Following Estrella and Hardouvelis (1991) and Estrella and Mishkin (1995a, b), we study the ability of the term structure to predict recessions in eight countries. The results are four-fold. First, the yield curve predicts future recessions in all countries. Second, term spreads forecast recessions as much as two 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 United Kingdom. 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.

Keywords: Monetary Policy; probit regressions; Term Structure of Interest Rates (search for similar items in EconPapers)
JEL-codes: E32 E43 E5 (search for similar items in EconPapers)
Date: 1998-05
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Citations: View citations in EconPapers (130)

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Related works:
Journal Article: 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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