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The yield curve as a leading indicator: some practical issues

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  • Arturo Estrella
  • Mary R. Trubin

Abstract

Since the 1980s, economists have argued that the slope of the yield curve-the spread between long- and short-term interest rates-is a good predictor of future economic activity. While much of the existing research has documented how consistently movements in the curve have signaled past recessions, considerably less attention has been paid to the use of the yield curve as a forecasting tool in real time. This analysis seeks to fill that gap by offering practical guidelines on how best to construct the yield curve indicator and to interpret the measure in real time.

Suggested Citation

  • Arturo Estrella & Mary R. Trubin, 2006. "The yield curve as a leading indicator: some practical issues," Current Issues in Economics and Finance, Federal Reserve Bank of New York, vol. 12(Jul).
    • Handle: RePEc:fip:fednci:y:2006:i:jul:n:v.12no.5
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    References listed on IDEAS

    as
    1. Arturo Estrella & Anthony P. Rodrigues & Sebastian Schich, 2003. "How Stable is the Predictive Power of the Yield Curve? Evidence from Germany and the United States," The Review of Economics and Statistics, MIT Press, vol. 85(3), pages 629-644, August.
    2. Eijffinger, S.C.W. & Schaling, E. & Verhagen, W.H., 1998. "The Term Structure of Interest Rates and Inflation Forecast Targeting," Other publications TiSEM 55e1f73a-746b-49ef-9d24-0, Tilburg University, School of Economics and Management.
    3. Arturo Estrella, 2005. "Why Does the Yield Curve Predict Output and Inflation?," Economic Journal, Royal Economic Society, vol. 115(505), pages 722-744, July.
    4. Eijffinger, S.C.W. & Schaling, E. & Verhagen, W.H., 1998. "The Term Structure of Interest Rates and Inflation Forecast Targeting," Other publications TiSEM 55e1f73a-746b-49ef-9d24-0, Tilburg University, School of Economics and Management.
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