The Slope and the Curvature of the Yield Curve in Recession Forecasting

21 Pages Posted: 15 Mar 2014

See all articles by Periklis Gogas

Periklis Gogas

Democritus University of Thrace - Department of Economics

Theophilos Papadimitriou

Department of Economics, Democritus University of Thrace

Efthymia Chrysanthidou

Democritus University of Thrace - Department of Economics

Date Written: March 5, 2014

Abstract

In this paper, we investigate the ability of two popular models to forecast the deviation of GDP from its long-run trend, i.e. inflationary and output gaps. In doing so, we exploit the information provided by the yield curve that is documented in the literature as a good predictor of economic activity. We combine and train our forecasting model using interest rates from Treasury Bills and Government Bond rates for the period 1976Q3 to 2011Q4, in conjunction with the quarterly real seasonally adjusted GDP for the same period. Our results show that we can achieve an overall forecasting accuracy of 80% on out-of-sample data. However, our main focus in this paper is to construct a forecasting model for the recessions. Perfect accuracy in recession forecasting is achieved in more than one of the created models. The forecasting performance of our model strengthens the conviction that the yield curve can be a useful and accurate predictive tool.

Keywords: support vector machines, yield curve, recession forecasting, GDP, machine learning

Suggested Citation

Gogas, Periklis and Papadimitriou, Theophilos and Chrysanthidou, Efthymia, The Slope and the Curvature of the Yield Curve in Recession Forecasting (March 5, 2014). Available at SSRN: https://ssrn.com/abstract=2409122 or http://dx.doi.org/10.2139/ssrn.2409122

Periklis Gogas

Democritus University of Thrace - Department of Economics ( email )

Komotini, 69100
Greece

HOME PAGE: http://www.econ.duth.gr/personel/dep/gkogkas/index.en.shtml

Theophilos Papadimitriou

Department of Economics, Democritus University of Thrace ( email )

University Campus
Komotini, 69100
Greece

HOME PAGE: http://econ.duth.gr/author/papadimi/

Efthymia Chrysanthidou (Contact Author)

Democritus University of Thrace - Department of Economics ( email )

Komotini
Greece

Register to save articles to
your library

Register

Paper statistics

Downloads
96
rank
267,469
Abstract Views
458
PlumX Metrics
!

Under construction: SSRN citations while be offline until July when we will launch a brand new and improved citations service, check here for more details.

For more information