ASYMMETRY IN THE LINK BETWEEN THE YIELD SPREAD AND INDUSTRIAL PRODUCTION. THRESHOLD EFFECTS AND FORECASTING

Ivan Paya (), David Peel and Ioannis Venetis ()

Working Papers. Serie AD from Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie)

Abstract: We analyze the nonlinear behavior of the information content in the spread for future real economic activity. The spread linearly predicts one year ahead real growth in nine industrial production sectors of the US and four of the UK over the last forty years. However, recent investigations on the spread-real activity relation have questioned both its linear nature and its time-invariant framework. Our, in-sample, empirical evidence suggests that the spread real activity relationship exhibits asymmetries that allow for different predictive power of the spread when past spread values were above or below some threshold value. We then measure the out-of-sample forecast performance of the nonlinear model using predictive accuracy tests. The results show that significant improvement in forecasting accuracy, at least for one-step ahead forecasts, can be obtained over the linear model.

Keywords: industrial production; yield spread; threshold model; forecasting; predictive accuracy (search for similar items in EconPapers)
Pages: 18 pages
Date: 2004-10
New Economics Papers: this item is included in nep-for
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

Published by Ivie

Downloads: (external link)
http://www.ivie.es/downloads/docs/wpasad/wpasad-2004-41.pdf Fisrt version / Primera version, 2004 (application/pdf)

Related works:
Journal Article: Asymmetry in the link between the yield spread and industrial production: threshold effects and forecasting (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:ivi:wpasad:2004-41

Access Statistics for this paper

More papers in Working Papers. Serie AD from Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie) Contact information at EDIRC.
Bibliographic data for series maintained by Departamento de Edición ().