Yield Curve

12 Pages Posted: 27 Apr 2000 Last revised: 15 Sep 2010

See all articles by Frederic S. Mishkin

Frederic S. Mishkin

Columbia Business School - Finance and Economics; National Bureau of Economic Research (NBER)

Date Written: December 1990

Abstract

This paper provides a brief survey of the relationship between the yield curve and future changes in interest rates and inflation. The expectations hypothesis of the term structure indicates .that when the yield curve is upward sloping, future short-term and long-term interest rates are expected to rise. Empirical evidence finds that as predicted by the expectations hypothesis, yield spreads are positively correlated with future changes in short-term interest rates, particularly at long horizons. However, yield spreads are negatively correlated with next period's change in long-term interest rates, the opposite prediction of the expectations hypothesis. Empirical evidence also suggests that the yield curve has almost no ability to forecast future inflation changes for short horizons: however, at horizons of a year or greater, the yield curve contains a great deal of information about the future path of inflation.

Suggested Citation

Mishkin, Frederic S., Yield Curve (December 1990). NBER Working Paper No. w3550, Available at SSRN: https://ssrn.com/abstract=226841

Frederic S. Mishkin (Contact Author)

Columbia Business School - Finance and Economics ( email )

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National Bureau of Economic Research (NBER)

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