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The impact of term spread volatility on economic activity

Author

Listed:
  • Megaritis, Anastasios
  • Bakas, Dimitrios
  • Bermpei, Theodora
  • Triantafyllou, Athanasios

Abstract

We examine the impact of the volatility of the US Treasury yield curve slope (term spread volatility) on US economic activity within a VAR framework. Our findings show that a positive shock to term spread volatility leads to a persistent decline in US industrial production. Moreover, our econometric results are the first to demonstrate that term spread volatility absorbs the macroeconomic predictive information contained in the level of the term spread. Finally, the negative effect of term spread volatility remains robust in alternative VAR models, as well when including popular uncertainty proxies such as the VIX and the EPU indexes.

Suggested Citation

  • Megaritis, Anastasios & Bakas, Dimitrios & Bermpei, Theodora & Triantafyllou, Athanasios, 2025. "The impact of term spread volatility on economic activity," Economics Letters, Elsevier, vol. 247(C).
    • Handle: RePEc:eee:ecolet:v:247:y:2025:i:c:s0165176525000278
    DOI: 10.1016/j.econlet.2025.112190
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    More about this item

    Keywords

    Term spread; Volatility; Economic activity; Industrial production;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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