Monetary Policy and the Information Content of the Yield Spread

Feroli Michael ()
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Feroli Michael: Federal Reserve Board

The B.E. Journal of Macroeconomics, 2004, vol. 4, issue 1, 17

Abstract: This paper investigates the determinants of the ability of the yield spread to predict output fluctuations conditional on the short rate. In the model of the paper, this predictive power is contingent on the monetary authority's reaction function. In particular, expectations of monetary policy actions are crucial for the spread to predict output. 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: Yield Spread; Yield Curve; Business Cycles; Monetary Policy. (search for similar items in EconPapers)
Date: 2004
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Citations: View citations in EconPapers (22)

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DOI: 10.2202/1534-5998.1156

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