Low Interest Rates and the Predictive Content of the Yield Curve

32 Pages Posted: 22 Sep 2020 Last revised: 21 Dec 2021

See all articles by Michael D. Bordo

Michael D. Bordo

Rutgers University, New Brunswick - Department of Economics; National Bureau of Economic Research (NBER)

Joseph G. Haubrich

Federal Reserve Bank of Cleveland

Multiple version iconThere are 2 versions of this paper

Date Written: December 21, 2021

Abstract

Does the yield curve's ability to predict future output and recessions differ when interest rates and inflation are low, as in the current global environment? We explore the issue using historical data going back to the 19th century for the US. This paper is similar in spirit to Ramey and Zubairy (2018), who look at the government spending multiplier in times of low interest rates. If anything, the yield curve tends to predict output growth better in low interest rate environments, though this result is stronger for RGDP than for IP.

Keywords: low interest rates, policy, predictive content of the yield curve

JEL Classification: E32, N10, G01

Suggested Citation

Bordo, Michael D. and Haubrich, Joseph G., Low Interest Rates and the Predictive Content of the Yield Curve (December 21, 2021). FRB of Cleveland Working Paper No. 20-24R, Available at SSRN: https://ssrn.com/abstract=3697320 or http://dx.doi.org/10.2139/ssrn.3697320

Michael D. Bordo

Rutgers University, New Brunswick - Department of Economics ( email )

New Brunswick, NJ
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Joseph G. Haubrich (Contact Author)

Federal Reserve Bank of Cleveland ( email )

East 6th & Superior
Cleveland, OH 44101-1387
United States
216-579-2802 (Phone)
216-579-3050 (Fax)

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