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A Note on the Predictive Power of the Term Spread for the Output Gap

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  • Paolo Zagaglia

Abstract

The term spread predicts the output gap of the U.S. economy, only at short horizons, over the full post-World War II sample. Predictive linear regressions are characterized by parameter instability. Differently from the case of forecasting models for output growth, there is no breakdown of predictive ability for the output gap that takes place after 1985. Rather, it is the role of information on current monetary policy that becomes negligible for the prediction of the output gap over the post-1985 subsample. Â JEL classification numbers: E43, E27.

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  • Paolo Zagaglia, 2024. "A Note on the Predictive Power of the Term Spread for the Output Gap," Journal of Applied Finance & Banking, SCIENPRESS Ltd, vol. 14(6), pages 1-7.
    • Handle: RePEc:spt:apfiba:v:14:y:2024:i:6:f:14_6_7
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    More about this item

    Keywords

    term structure; yield spread; output gap; predictability.;
    All these keywords.

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E27 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Forecasting and Simulation: Models and Applications

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