The Slope of the Term Structure and Recessions: The Pre-Fed Evidence, 1857-1913

23 Pages Posted: 26 Jun 2018

See all articles by Stefan Gerlach

Stefan Gerlach

Central Bank of Ireland; Centre for Economic Policy Research (CEPR)

Rebecca Stuart

Central Bank of Ireland

Date Written: June 2018

Abstract

This paper studies the information content of the slope of the term structure for recessions, using monthly US data spanning 1857-1913. We find that the term spread predicts future recessions up to about 12 months ahead, as does the current value of the recession dummy. We also find that stock prices are significant in the probit models we use to predict future recessions, but that business failures and growth in industrial production are generally insignificant. Overall, the results give broad support to the findings of Bordo and Haubrich (2004, 2008a, 2008b), who use quarterly data from 1875 to study the ability of the term structure to forecast real GNP growth. C25

Keywords: Federal Reserve, Recessions, term structure

JEL Classification: C25, E00, E43

Suggested Citation

Gerlach, Stefan and Stuart, Rebecca, The Slope of the Term Structure and Recessions: The Pre-Fed Evidence, 1857-1913 (June 2018). Available at SSRN: https://ssrn.com/abstract=3202305

Stefan Gerlach (Contact Author)

Central Bank of Ireland ( email )

P.O. Box 559
Dame Street
Dublin, 2
Ireland

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Rebecca Stuart

Central Bank of Ireland ( email )

P.O. Box 559
Dame Street
Dublin, 2
Ireland

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