How useful is the yield spread as a predictor of growth in Australia?

George Chen, Abbas Valadkhani and Bligh Grant ()

Journal of Economic Studies, 2016, vol. 43, issue 2, 222-241

Abstract: Purpose - – The purpose of this paper is to examine the usefulness of the yield spread for forecasting growth in the Australian economy since 1969. Design/methodology/approach - – This paper applies time series analysis to evaluate the in-sample and out-of-sample forecasting power of the spread-growth nexus in Australia for the period spanning from 1969 to 2014. Findings - – This paper concludes that the spread serves as a useful predictor of growth in output, private dwellings, private fixed capital formation, and inventories in Australia, both in-sample and out-of-sample. Its predictive content is not sensitive to the inclusion of monetary policy variables or the switch to the inflation-targeting regime by the Reserve Bank of Australia in the early 1990s. Originality/value - – This paper provides significant evidence to policy makers and market participants on the usefulness of the spread in forecasting output growth for up to eight quarters ahead.

Keywords: Australia; Interest rates; Leading indicators; Yield spread (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eme:jespps:v:43:y:2016:i:2:p:222-241

DOI: 10.1108/JES-09-2014-0159

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