Low Interest Rates, Policy, and the Predictive Content of the Yield Curve

33 Pages Posted: 22 Sep 2020

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: August 6, 2020

Abstract

Does the yield curve’s ability to predict future output and recessions differ when interest rates are low, as in the current global environment? In this paper we build on recent econometric work by Shi, Phillips, and Hurn that detects changes in the causal impact of the yield curve and relate that to the level of interest rates. We explore the issue using historical data going back to the 19th century for the United States and more recent data for the United Kingdom, Germany, and Japan. This paper is similar in spirit to Ramey and Zubairy (2018), who look at the government spending multiplier in times of low interest rates.

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, Policy, and the Predictive Content of the Yield Curve (August 6, 2020). 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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