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When does the yield curve contain predictive power? Evidence from a data-rich environment

Jari Hännikäinen

International Journal of Forecasting, 2017, vol. 33, issue 4, 1044-1064

Abstract: This paper analyzes the predictive content of the level, slope and curvature of the yield curve for U.S. real activity in a data-rich environment. We find that, while the slope contains predictive power, the level and curvature are not successful leading indicators. The predictive power of each of the yield curve factors fluctuates over time. The results show that economic conditions matter for the predictive ability of the slope. In particular, inflation persistence emerges as a key variable that affects the predictive content of the slope. The slope tends to forecast the output growth better when inflation is highly persistent.

Keywords: Yield curve; Factor model; Data-rich environment; Macroeconomic forecasting; Macroeconomic regimes; Conditional predictive ability (search for similar items in EconPapers)
Date: 2017
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Related works:
Working Paper: When does the yield curve contain predictive power? Evidence from a data-rich environment (2016) Downloads
Working Paper: When does the yield curve contain predictive power? Evidence from a data-rich environment (2016) Downloads
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