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Does the Yield Curve Signal Recessions? New Evidence from an International Panel Data Analysis

Jean-Baptiste Hasse and Quentin Lajaunie ()

No 2013, AMSE Working Papers from Aix-Marseille School of Economics, France

Abstract: In this paper, we reexamine the predictive power of the yield spread across countries and over time. Using a dynamic panel/dichotomous model framework and a unique dataset covering 13 OECD countries over a period of 45 years, we empirically show that the yield spread signals recessions. This result is robust to different econometric specifications, controlling for recession risk factors and time sampling. Using a new cluster analysis methodology, we present empirical evidence of a partial homogeneity of the predictive power of the yield spread. Our results provide a valuable framework for monitoring economic cycles.

Keywords: yield spread; recession; panel binary model; cluster analysis (search for similar items in EconPapers)
JEL-codes: C23 C25 E37 E43 E52 E58 (search for similar items in EconPapers)
Pages: 43 pages
Date: 2020-04
New Economics Papers: this item is included in nep-mac and nep-ore
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