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The Yield Curve, Recessions, and the Credibility of the Monetary Regime


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.

JEL Classification: E43, E44, G13, E52

Key Words: Yield curve, monetary regime, business cycles


Suggested citation: Bordo, Michael D., and Joseph Haubrich, 2004. "The Yield Curve, Recessions, and the Credibility of the Monetary Regime," Federal Reserve Bank of Cleveland, Working Paper no. 04-02.

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