Does the yield curve predict the future economic activity? The case of EU-25
| Authors | |
|---|---|
| Year of publication | 2013 |
| Type | Article in Proceedings |
| Conference | Conference Proceedings: 4th International Masaryk Conference for Ph.D. Students and Young Researchers 2013. |
| MU Faculty or unit | |
| Citation | |
| Field | Economy |
| Keywords | prediction of economic activity slope yield curve GDP spread |
| Description | The yield curve – specifically the spread between long term and short term interest rates is a valuable forecasting tool. It is simple to use and significantly outperforms other financial and macroeconomic indicators in predicting recessions two to six quarters ahead. The steepness of the yield curve should be an excellent indicator of a possible future economic activity. A rise in the short rate tends to flatten the yield curve as well as to slow real growth the near term. This paper aims to analyse the dependence between slope of the yield curve and an economic activity in EU-25 between the years 2000 and 2013. The slope of the yield curve can be measured as the yield spread between 10-year bonds and 3-month bonds. The natural and probably the most popular measure of growth is by GDP growth, taken quarterly. The results can be beneficial for investors as a possible indicator of future economic activity. |
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