On the Predictive Power of Interest Rates and Interest Rate Spreads

Ben Bernanke

NBER Working Paper No. 3486
Issued in October 1990
NBER Program(s):Economic Fluctuations and Growth, Monetary Economics

A number of interest rates and interest rate spreads have been found to be useful in prediction the course of the economy. We compare the predictive power of some of these suggested interest rate variables for nine indicators of real activity and the inflation rate. Our results are consistent with those of Stock and Watson (1989) and Friedman and Kuttner (1989), who found that the spread between the commercial paper rate and the Treasury bill rate has been a particularly good predictor. We present evidence that this spread is informative not so much because it is a measure of default risk (which has been the usual presumption), but because it is an indicator of the stance of monetary policy; for example, during the "credit crunches" of the l960s aid the 1970s, the commercial paper -- Treasury bill spread typically rose significantly. We also show that, possibly because of charges in monetary policy operating procedures aid in financial markets, this spread appears r to be a less reliable predictor than it used to be.

download in pdf format
   (403 K)

email paper

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w3486

Published: New England Economic Review (Federal Reserve Bank of Boston) November-December 1990, pp. 51-68. citation courtesy of

Users who downloaded this paper also downloaded* these:
Bernanke w3487 The Federal Funds Rate and the Channels of Monetary Transnission
Bernanke and Gertler w5146 Inside the Black Box: The Credit Channel of Monetary Policy Transmission
Bernanke w1054 Non-Monetary Effects of the Financial Crisis in the Propagation of the Great Depression
Gertler and Lown w7549 The Information in the High Yield Bond Spread for the Business Cycle: Evidence and Some Implications
Bernanke and Blinder w2534 Credit, Money, and Aggregate Demand
NBER Videos

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email:

Contact Us