Working Paper Series no. 67: Does the Yield Spread Content any Information about Future Economic Activity? (In French)

Abstract

We investigate in this paper the ability of the yield spread to forecast economic activity in Germany, the United States and France. Two approaches are implemented. The first one, widely used, consists in regressing the growth rate of the GDP computed on various horizons on the yield spread. In the second one, we examine the usefulness of the yield spread in predicting whether or not the economy will be in recession in the future. So, in that particular case we use a probit model. For both approaches, we analyze the in-sample forecasting ability as well as the out-of-sample accuracy of the outcomes. The stability of the relation, based on time-varying root mean squares errors, is also analyzed.
Keywords : Term structure of interest rate, Information content, Economic activity.

Franck Sédillot
June 1999