The Predictive Power of the Yield Spread: Further Evidence and a Structural Interpretation

This paper investigates the predictive power of the yield spread on future industrial production growth and recession in Turkey. Employing the linear regression model we find that the yield spread has predictive power when forecasting industrial production growth. The results also suggest that in the inflation targeting monetary policy period, predictive power of the yield spread has increased. Furthermore, we investigate whether the yield spread predicts recession by employing a probit model. Since no official recessions are available in Turkey, we determine the recessions using the BBQ methodology. The findings suggest that the yield spread predicts the recessions about one year ahead.

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The predictive power of the yield spread for future economic expansions: Evidence from a new approach

Economic Modelling ◽

10.1016/j.econmod.2018.06.018 ◽

2018 ◽

Vol 75 ◽

pp. 181-195 ◽

Cited By ~ 3

Author(s):

Bartosz Gebka ◽

Mark E. Wohar

Keyword(s):

Predictive Power ◽

Yield Spread ◽

New Approach

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Economic activity forecast in emerging markets

Corporate Ownership and Control ◽

10.22495/cocv12i1c3p1 ◽

2014 ◽

Vol 12 (1) ◽

pp. 325-329 ◽

Cited By ~ 1

Author(s):

Andre Carvalhal ◽

Miguel Murillo

Keyword(s):

Economic Growth ◽

Emerging Markets ◽

Emerging Economies ◽

Economic Activity ◽

Predictive Power ◽

Forecasting Model ◽

Yield Spread ◽

Fixed Income ◽

Time Horizons ◽

Activity Forecast

This paper uses a forecasting model for real economic activity for a group of emerging economies (Brazil, India, Mexico and Russia) based on the information contained in their capital markets. We forecast the industrial production in emerging markets throughout different time horizons using information contained in stock and fixed-income markets. Our results suggest that fixed-income and stock markets do not reveal information regarding future economic growth in Brazil, Mexico and Russia. In the case of India, the yield spread explain part of the variation of the economic activity, but the stock market does not have predictive power.

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