Low Interest Rates and the Predictive Content of the Yield Curve
32 Pages Posted: 22 Sep 2020 Last revised: 21 Dec 2021
Date Written: December 21, 2021
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: Suggested Citation