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The predictive power of the yield spread for future economic expansions: Evidence from a new approach

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journal contribution
posted on 20.09.2018 by Bartosz Gebka, Mark Wohar
We investigate the predictive power of the yield spread for future economic growth. The novel approach adopted here is to utilise its predictive ability for the whole distribution of future growth, rather than predicting the center of this distribution directly. Our results confirm previous findings that the yield spread does contain additional information about the future GDP growth, which varies over time. Most importantly, utilising the information contained in the whole conditional distribution of predicted GDP growth, rather than concentrating on the center of it, provides additional forecasting power for shorter (3–9 months) horizons. This approach is also superior in forecasting future expansionary phases, notably a more common phenomenon than recessions for which the traditional, OLS-based forecasts seem to perform better.

History

School

  • Business and Economics

Department

  • Business

Published in

Economic Modelling

Citation

GEBKA, B. and WOHAR, M.E., 2018. The predictive power of the yield spread for future economic expansions: Evidence from a new approach. Economic Modelling, 75, pp.181-195.

Publisher

© Elsevier

Version

AM (Accepted Manuscript)

Publisher statement

This work is made available according to the conditions of the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International (CC BY-NC-ND 4.0) licence. Full details of this licence are available at: https://creativecommons.org/licenses/by-nc-nd/4.0/

Acceptance date

18/06/2018

Publication date

2018

Notes

This paper was accepted for publication in the journal Economic Modelling and the definitive published version is available at https://doi.org/10.1016/j.econmod.2018.06.018

ISSN

0264-9993

Language

en

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