Abstract
Several studies have established the predictive power of the yield curve in terms of real economic activity. In this paper we use data for a variety of E.U. countries: both EMU (Germany, France, Italy, Portugal and Spain) and non-EMU members (Norway, Sweden and the U.K.). The data used range from 1991:Q1 to 2009:Q3. For each country, we extract the long run trend and the cyclical component of real economic activity, while the corresponding ECB euro area government benchmark bond interest rates of long and short term maturities are used for the calculation of the yield spreads. We also augment the models tested with non monetary policy variables: the respective unemployment rates and stock indices. The methodology employed in the effort to forecast real output, is a probit model of the inverse cumulative distribution function of the standard distribution, using several formal forecasting and goodness of fit evaluation criteria. The results show that the yield curve augmented with the non-monetary variables has significant forecasting power in terms of real economic activity but the results differ qualitatively between the individual economies examined raising non-trivial policy implications.
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Notes
These are available from the authors upon request.
See Chionis, Gogas and Pragidis (2009) for an explanation for this selection.
“Comparing predictive accuracy”, Francis Diebold & Roberto Mariano, Journal of Business & Economic Statistics, July 1995, Vol. 13, No. 3
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Acknowledgements
The authors would like to thank the participants at the 68th International Atlantic Economic Conference in Boston, 8–11 October 2009, and especially the organizer of the session “Recent Issues in Finance”, Prof. Nicholas Apergis.The comments and suggestions from two anonymous referees greatly improved the paper and we appreciate their input. We also thank Mr. HarroldPrins for kindly providing us with some of the data. Of course the usual caveat applies for any remaining errors.
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Gogas, P., Pragidis, I. GDP trend deviations and the yield spread: the case of eight E.U. countries. J Econ Finan 36, 226–237 (2012). https://doi.org/10.1007/s12197-011-9176-9
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DOI: https://doi.org/10.1007/s12197-011-9176-9