How Stable is the Predictive Power of the Yield Curve? Evidence from Germany and the United States

32 Pages Posted: 6 Jan 2001

See all articles by Arturo Estrella

Arturo Estrella

Anthony P. Rodrigues

Federal Reserve Bank of New York

Sebastian Schich

Organisation for Economic Co-operation and Development (OECD)

Date Written: September 2000

Abstract

Empirical research over the last decade has uncovered predictive relationships between the slope of the yield curve and subsequent real activity and inflation. Some of these relationships are highly significant, but their theoretical motivations suggest that they may not be stable over time. We use recent econometric techniques for break testing to examine whether the empirical relationships are in fact stable. We consider continuous models, which predict either economic growth or inflation, and binary models, which predict either recessions or inflationary pressure. In each case, we draw on evidence from Germany and the United States. Models that predict real activity are more stable than those that predict inflation, and binary models are more stable than continuous models. The model that predicts recessions is stable over our full sample period in both Germany and the United States.

Keywords: yield curve, binary models, recession

JEL Classification: E44, C22, C52

Suggested Citation

Estrella, Arturo and Rodrigues, Anthony P. and Schich, Sebastian, How Stable is the Predictive Power of the Yield Curve? Evidence from Germany and the United States (September 2000). FRB of New York Staff Report No. 113. Available at SSRN: https://ssrn.com/abstract=249965 or http://dx.doi.org/10.2139/ssrn.249965

Anthony P. Rodrigues

Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States

Sebastian Schich

Organisation for Economic Co-operation and Development (OECD) ( email )

2 rue Andre Pascal
Paris Cedex 16, MO 63108
France
+33 1 4524 1419 (Phone)
+33 1 4524 9050 (Fax)

No contact information is available for Arturo Estrella

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