Why Can the Yield Curve Predict Output Growth, Inflation, and Interest Rates? An Analysis with Affine Term Structure Model

Hibiki Ichiue ()

No 581, Econometric Society 2004 Far Eastern Meetings from Econometric Society

Abstract: The literature gives evidence that term spreads help predict output growth, inflation, and interest rates. This paper integrates and explains these predictability results by using an affine term structure model with observable macroeconomic factors. The results suggest that consumers are willing to pay a higher premium for output growth risk hedge during the higher inflation regime. This causes term spreads to react to recent inflation shocks, which prove useful for prediction. We also find that term spreads using the short end of the yield curve have less predictive power than many other spreads. We attribute this to monetary policy inertia

Keywords: Term Structure; Monetary Policy; VAR (search for similar items in EconPapers)
JEL-codes: E43 E52 (search for similar items in EconPapers)
Date: 2004-08-11
New Economics Papers: this item is included in nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

Downloads: (external link)
http://repec.org/esFEAM04/up.15442.1080222129.pdf (application/pdf)

Related works:
Working Paper: Why Can the Yield Curve Predict Output Growth, Inflation, and Interest Rates? An Analysis with an Affine Term Structure Model (2004)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ecm:feam04:581

Access Statistics for this paper

More papers in Econometric Society 2004 Far Eastern Meetings from Econometric Society Contact information at EDIRC.
Bibliographic data for series maintained by Christopher F. Baum ().