NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

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):   EFG   ME

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

This paper is available as PDF (403 K) or via email.

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:
Gertler, Hubbard, and Kashyap Interest Rate Spreads, Credit Constraints, and Investment Fluctuations: An Empirical Investigation
Friedman and Kuttner Why Does the Paper-Bill Spread Predict Real Economic Activity?
Stock and Watson New Indexes of Coincident and Leading Economic Indicators
Friedman and Kuttner w3879 Why Does the Paper-Bill Spread Predict Real Economic Activity?
Bernanke w3487 The Federal Funds Rate and the Channels of Monetary Transnission
 
Publications
Activities
Meetings
NBER Videos
Data
People
About

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

Contact Us