Changes in the Informational Content of the Spread: Is Monetary Policy Becoming Less Effective?

Javier Gómez ()
Additional contact information
Javier Gómez: IESE, Universidad de Navarra

No 05/07, Faculty Working Papers from School of Economics and Business Administration, University of Navarra

Abstract: We examine how the predictive power of term spreads as predictors of economic recessions in Europe and the US has changed in the last two decades. In particular, we focus on the power of domestic and of US and German term spreads to predict real economic activity. Using a battery of methodologies that include endogenous changepoint detection we find that the predictive power of spreadtype variables has changed significantly after the 1980s: in the most advanced countries the domestic spread has lost its informative content in favor of the US spread, whereas in other, less developed countries, this informational content has appeared during the late 1980s. Other predictive variables examined are shown to add little information over term spreads. Given the theoretical arguments that support the predictive power, these findings suggest that domestic monetary policy may have become less effective with respect to real activity in the most developed countries of the sample.

Keywords: Interest Rate Spread; Recession; Forecast; Europe (search for similar items in EconPapers)
JEL-codes: C53 E44 (search for similar items in EconPapers)
Pages: 35 pages
Date: 2007-08-01
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Published, Journal of Economics and Business 60 (2008), 415�435

Downloads: (external link)
http://www.unav.edu/documents/10174/6546776/1186653865_wp0507.pdf (application/pdf)
Our link check indicates that this URL is bad, the error code is: 404 Not Found (http://www.unav.edu/documents/10174/6546776/1186653865_wp0507.pdf [301 Moved Permanently]--> https://www.unav.edu/documents/10174/6546776/1186653865_wp0507.pdf)

Related works:
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:una:unccee:wp0507

Access Statistics for this paper

More papers in Faculty Working Papers from School of Economics and Business Administration, University of Navarra
Bibliographic data for series maintained by ().