Does the Yield Curve Predict Output?

Joseph Haubrich

Annual Review of Financial Economics, 2021, vol. 13, issue 1, 341-362

Abstract: Does the yield curve have the ability to predict output and recessions? At some times and in certain places, of course! But when and where, which aspects of the curve matter most, and which economic forces account for the predictive ability are matters of dispute. Over the years, an increasingly sophisticated set of tools, both statistical and theoretical, has addressed the issue. For the United States, an inverted yield curve, particularly when the spread between the yield on 10-year and 3-month Treasuries becomes negative, has been a robust indicator of recessions in the post-World War II period. The spread also predicts future real GDP growth for the United States, although the forecast ability varies by time period in ways that appear to depend on monetary policy. The evidence is less clear in other countries, but the yield curve shows some predictive ability for the United Kingdom and Germany, among others.

Keywords: yield curve; term structure; prediction; recessions (search for similar items in EconPapers)
JEL-codes: E32 E43 G12 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (2)

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Working Paper: Does the Yield Curve Predict Output? (2020)
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DOI: 10.1146/annurev-financial-100620-065648

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