Forecasting Recessions: The Puzzle of the Enduring Power of the Yield Curve

Glenn Rudebusch and John Williams

No 2007-16, Working Paper Series from Federal Reserve Bank of San Francisco

Abstract: For over two decades, researchers have provided evidence that the yield curve, specifically the spread between long- and short-term interest rates, contains useful information for signaling future recessions. Despite these findings, forecasters appear to have generally placed too little weight on the yield spread when projecting declines in the aggregate economy. Indeed, we show that professional forecasters appear worse at predicting recessions a few quarters ahead than a simple real-time forecasting model that is based on the yield spread. This relative forecast power of the yield curve remains a puzzle.

Keywords: Economic forecasting; Recessions (search for similar items in EconPapers)
Pages: 37
Date: 2008-07-01
New Economics Papers: this item is included in nep-cba, nep-for, nep-mac and nep-mon
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Citations: View citations in EconPapers (15)

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Related works:
Journal Article: Forecasting Recessions: The Puzzle of the Enduring Power of the Yield Curve (2009)
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DOI: 10.24148/wp2007-16

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