Does the yield spread predict recessions in the euro area?

Arbeitspapier

This paper studies the informational content of the slope of the yield curve as a predictor of recessions in the euro area. In particu-lar, the historical predictive power of ten yield spreads, for di®erent segments of the yield curve, is tested using a probit model. The yield spread between the ten-year government bond rate and the three-month interbank rate outperforms all the other spreads in predicting recessions in the euro area. The result is con¯rmed when the au-toregressive series of the state of the economy is added in the same model. The forecast accuracy of the spread between 10-year and 3-month interest rates is explored in an exercise of out-of-sample forecasting. This yield spread appears to contain information which goes beyond the information already available in the history of output, providing further evidence of the potential usefulness of this indicator for mon-etary policy purposes.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: ECB Working Paper ; No. 294

Classification and Topics

• Classification: Wirtschaft ; Financial Markets and the Macroeconomy ; Monetary Policy ; Forecasting Models; Simulation Methods
• Subject: forecasting ; probit model ; recessions ; yield curve

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Moneta, Fabio
• Event: Veröffentlichung
• (who): European Central Bank (ECB)
• (where): Frankfurt a. M.
• (when): 2003

Further information

• Handle: http://hdl.handle.net/10419/152728
• Last update: 10.03.2025, 11:42 AM CET