The Yield Spread Puzzle and the Information Content of SPF Forecasts

6 Pages Posted: 5 Nov 2012

See all articles by Kajal Lahiri

Kajal Lahiri

State University of New York (SUNY) at Albany, College of Arts and Sciences, Economics

George Monokroussos

Joint Research Centre, Italy

Yongchen Zhao

Towson University - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: November 5, 2012

Abstract

While the yield spread has long been recognized as a good predictor of recessions, it seems to have been largely overlooked by professional forecasters. We examine this puzzle, established by Rudebusch and Williams (2009), in a data-rich environment including not just the yield spread but many other predictors as well. We confirm the puzzle in this context by examining the contributions of both the SPF forecasts and the yield spread in predicting recessions, and by examining the information content of SPF forecasts directly. Furthermore, we take the first step towards a possible resolution of this puzzle by recognizing the heterogeneity across professional forecasters.

Keywords: Probability forecasts, Yield spread, Real-time data

JEL Classification: C53, E43, E47

Suggested Citation

Lahiri, Kajal and Monokroussos, George and Zhao, Yongchen, The Yield Spread Puzzle and the Information Content of SPF Forecasts (November 5, 2012). Economics Letters, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2171427

Kajal Lahiri (Contact Author)

State University of New York (SUNY) at Albany, College of Arts and Sciences, Economics ( email )

Department of Economics
1400 Washington Avenue
Albany, NY 12222
United States
518-442 4758 (Phone)
518-442 4736 (Fax)

HOME PAGE: http://www.albany.edu/~klahiri

George Monokroussos

Joint Research Centre, Italy ( email )

Via E. Fermi 1
I-21020 Ispra (VA)
Italy

Yongchen Zhao

Towson University - Department of Economics ( email )

Towson, MD 21204
United States

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