Why does the yield curve predict economic activity? Dissecting the evidence for Germany and the United States
Kostas Tsatsaronis () and
No 49, BIS Working Papers from Bank for International Settlements
This paper investigates why the slope of the yield curve predicts future economic activity in Germany and the United States. A structural VAR is used to identify aggregate supply, aggregate demand, monetary policy and inflation scare shocks and to analyse their effects on the real, nominal and term premium components of the term spread and on output. In both countries demand and monetary policy shocks contribute to the covariance between output growth and the lagged term spread, while inflation scares do not. As the latter are more important in the United States, they reduce the predictive content of the term spread in that country. The main reason for the stronger leading indicator property in Germany is, however, the positive contribution of supply shocks, which owing to a different monetary policy response explain about half of the positive covariance at lag four in Germany and almost nothing in the United States.
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (13) Track citations by RSS feed
Downloads: (external link)
http://www.bis.org/publ/work49.pdf Full PDF document (application/pdf)
Working Paper: Why Does the Yield Curve Predict Economic Activity? Dissecting the Evidence for Germany and the United States (1997)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:bis:biswps:49
Access Statistics for this paper
More papers in BIS Working Papers from Bank for International Settlements Contact information at EDIRC.
Bibliographic data for series maintained by Christian Beslmeisl ().