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Investigating time-variation in the marginal predictive power of the yield spread

Luca Benati () and Charles Goodhart

No 802, Working Paper Series from European Central Bank

Abstract: We use Bayesian time-varying parameters VARs with stochastic volatility to investigate changes in the marginal predictive content of the yield spread for output growth in the United States and the United Kingdom, since the Gold Standard era, and in the Eurozone, Canada, and Australia over the post-WWII period. Overall, our evidence does not provide much support for either of the two dominant explanations why the yield spread may contain predictive power for output growth, the monetary policy-based one, and Harvey's (1988) 'real yield curve' one. Instead, we offer a new conjecture. JEL Classification: E42, E43, E47

Keywords: Bayesian VARs; medianunbiased; stochastic volatility; time-varying parameters (search for similar items in EconPapers)
Date: 2007-08
Note: 802546
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