The Yield Curve, Recessions, and the Credibility of the Monetary Regime: Long-Run Evidence, 1875-1997
32 Pages Posted: 30 Oct 2007
Date Written: April 2004
This paper brings historical evidence to bear on the stylized fact that the yield curve predicts future growth. The spread between corporate bonds and commercial paper reliably predicts future growth over the period 1875-1997. This predictability varies over time, however, particularly across different monetary regimes. In accord with our proposed theory, regimes with low credibility (high persistence of inflation) tend to have better predictability.
Keywords: yield curve, monetary regime, business cycles
JEL Classification: E43, E44, G13, E52
Suggested Citation: Suggested Citation