Shape Evolution of the Interest Rate Term Structure

Biwei Chen
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Biwei Chen: State University of New York at Binghamton

Review of Economic Analysis, 2022, vol. 13, issue 4, 427-457

Abstract: "This paper adopts a novel approach to studying the evolution of interest rate term structure over the U.S. business cycles and to predicting recessions. Applying an effective algorithm, I classify the Treasury yield curve into distinct shapes and find the less frequent shapes intrinsically linked to the recessions in the post-WWII data. In forecasting recessions, the median-short yield spread trumps the long-short spread for horizons up to 17 months ahead and the yield curve shape is nearly impressive as the median-short spread. Overall, the yield curve shape is an informative but more succinct indicator than the spreads in studying the term structure. Key words: Business cycle, recession forecast, U.S. Treasury yield curve, yield spreads."

Keywords: "Business cycle; recession forecast; U.S. Treasury yield curve; yield spreads" (search for similar items in EconPapers)
JEL-codes: C52 C53 E43 E47 G12 (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:ren:journl:v:13:y:2022:i:4:p:427-457

DOI: 10.15353/rea.v13i3.4698

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