EconPapers    
Economics at your fingertips  
 

The yield spread's ability to forecast economic activity: What have we learned after 30 years of studies?

Anastasios Evgenidis (), Stephanos Papadamou () and Costas Siriopoulos ()

Journal of Business Research, 2020, vol. 106, issue C, 221-232

Abstract: Forecasting economic activity has attracted a great deal of econometric work, while mixed evidence has been found concerning the ability of the yield spread to forecast gross domestic product (GDP). This paper uses a meta-analysis framework to deal with the heterogeneity in the results seen in the literature. Our findings suggest that nonlinearities, as well as the role of monetary policy, should be considered when modeling this relationship. We also find that the forecasting ability of the yield spread has become much stronger over the last twenty years. Moreover, we argue that the yield spread is a useful tool in predicting economic activity in many major world economies, particularly those of the US, Canada, and Europe and, more importantly, especially during financial stress periods. Last, we find that improvements in the stock market reduce the usefulness of the yield spread in predicting future economic activity.

Keywords: Business cycle forecasting; Yield spread; Meta-analysis; Leading indicators (search for similar items in EconPapers)
JEL-codes: C83 E3 E4 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7) Track citations by RSS feed

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0148296318304272
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:jbrese:v:106:y:2020:i:c:p:221-232

DOI: 10.1016/j.jbusres.2018.08.041

Access Statistics for this article

Journal of Business Research is currently edited by A. G. Woodside

More articles in Journal of Business Research from Elsevier
Bibliographic data for series maintained by Catherine Liu ().

 
Page updated 2022-09-10
Handle: RePEc:eee:jbrese:v:106:y:2020:i:c:p:221-232