google.com, pub-6007374308804254, DIRECT, f08c47fec0942fa0
More
    More

      Structural Breaks in the Term Spread-GDP Growth Relationship


      Following up on the examination of what the term spread predicts, here’s the slope coefficients for the term spread, in regressions augmented with short rate, from 1946-2023Q3 (GDP growth 1947-2024Q3).

      Figure 1: Regression coefficient of GDP growth lead 4 quarters on 10yr-3mo spread for subsamples. + (***) indicates significance at 11% (1%) msl, using Newey-West standard errors. Source: Author’s calculations.

      The overall least-squares break regression result (Bai-Perron) is:

      If one runs a simple OLS regression on the last subsample (1984Q2-2023Q3), the adjusted-R2 is only 0.04. The prediction looks like the following:

      Figure 2: Year-on-Year GDP growth rate (blue) and predicted (tan). NBER defined peak-to-trough recession dates shaded gray.

      Clearly, the term spread Compare with the middle period identified by the Bai-Perron method:

      Figure 3: Year-on-Year GDP growth rate (blue) and predicted (tan). NBER defined peak-to-trough recession dates shaded gray.

      These results suggest that the term spread is not currently a great predictor of growth (although it may become so again in the future).

      Addendum, 11/17, 12 noon PT:

      Similar results using GDO.

      Figure 4: Regression coefficient of GDO growth lead 4 quarters on 10yr-3mo spread for subsamples. * (***) indicates significance at 10% (1%) msl, using Newey-West standard errors. Source: Author’s calculations.



      Source link

      Recent Articles

      Reciprocal Tariffs Actually Make Wealthy Americans Even Richer

      Reciprocal tariffs will drive up the cost of most goods, making everyday life more expensive for American households. According to Fitch Ratings, the...

      More Apartments Are Being Carved Out of Office Spaces

      Although Covid-19 has subsided and returned many employees to their cubicles, continued remote work and a housing shortage has spurred more office buildings...

      Report Highlights Louisiana’s Tort System as Barrier to Social Mobility

      A report published this week by a Washington, D.C.-based think tank ranks Louisiana as the...

      How to Clean Up Your Credit Report in 2025

      A single error on your credit report can drop your score...

      Trump Deploys His Tariff Wrecking Ball; How Much Will the US Suffer Along with Most of the Rest of the World?

      The Trump tariffs, announced on April 2, are so wantonly stupid and destructive that I can barely stand to discuss them. But because...

      Related Stories

      Leave A Reply

      Please enter your comment!
      Please enter your name here

      Stay on op - Ge the daily news in your inbox

      google.com, pub-6007374308804254, DIRECT, f08c47fec0942fa0
      google.com, pub-6007374308804254, DIRECT, f08c47fec0942fa0