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Predicting recessions with the term spread - recent evidence from seven countries

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  • Mathias Moersch
  • Armin Pohl

Abstract

Using data including the most recent recession and employing two different definitions of recessions, this article examines the ability of the term spread of interest rates to predict recessions for seven countries. The empirical results indicate that the predictive power of the term spread is best for Canada, Germany, the United States and the United Kingdom. It is not solely a result of the link with monetary policy but for the most part reflects information independent of monetary policy actions. The National Bureau of Economic Research (NBER)/Economic Cycle Research Institute (ECRI) chronology of recessions provides the best fit.

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  • Mathias Moersch & Armin Pohl, 2011. "Predicting recessions with the term spread - recent evidence from seven countries," Applied Economics Letters, Taylor & Francis Journals, vol. 18(13), pages 1285-1288.
    • Handle: RePEc:taf:apeclt:v:18:y:2011:i:13:p:1285-1288
    DOI: 10.1080/13504851.2010.534055
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    1. Goodness C. Aye & Christina Christou & Luis A. Gil‐Alana & Rangan Gupta, 2019. "Forecasting the Probability of Recessions in South Africa: the Role of Decomposed Term Spread and Economic Policy Uncertainty," Journal of International Development, John Wiley & Sons, Ltd., vol. 31(1), pages 101-116, January.

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