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Low Interest Rates and the Predictive Content of the Yield Curve


Does the yield curve's ability to predict future output and recessions differ when interest rates and inflation are low, as in the current global environment? We explore the issue using historical data going back to the 19th century for the US. This paper is similar in spirit to Ramey and Zubairy (2018), who look at the government spending multiplier in times of low interest rates. If anything, the yield curve tends to predict output growth better in low interest rate environments, though this result is stronger for RGDP than for IP.

Keywords: Low Interest Rates, Policy, Predictive Content of the Yield Curve.
JEL classification codes: E32, N10, G01.


Suggested citation: Bordo, Michael D., and Joseph G. Haubrich. 2021. "Low Interest Rates and the Predictive Content of the Yield Curve." Working Paper No. 20-24R. Federal Reserve Bank of Cleveland. https://doi.org/10.26509/frbc-wp-202024r.

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