Monetary policy and the information content of the yield spread

Michael Feroli

No 2004-44, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: This paper demonstrates that the ability of the yield spread to predict output fluctuations is contingent on the monetary authority's reaction function. In particular, expectations of monetary policy actions are crucial for the spread to predict output conditional on the short-rate. Furthermore, numerical experiments suggest that the post-1979 decrease in the yield spread's predictive power is due to a shift in the monetary policy reaction function at that time.

Keywords: Monetary policy; Economic forecasting; Business cycles (search for similar items in EconPapers)
Date: 2004
New Economics Papers: this item is included in nep-cba and nep-mon
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Citations: View citations in EconPapers (19)

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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgfe:2004-44

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