The Yield Curve, Recessions and the Credibility of the Monetary Regime: Long Run Evidence 1875-1997
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NBER Working Paper No. 10431
Issued in April 2004
NBER Program(s): DAE ME
This paper brings historical evidence to bear on the stylized fact that the yield curve predicts future growth. The spread between corporate bonds and commercial paper reliably predicts future growth over the period 1875-1997. This predictability varies over time, however, particularly across different monetary regimes. In accord with our proposed theory, regimes with low credibility (high persistence of inflation) tend to have better predictability.
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