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Working Paper

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

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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.
04.01.2004ISSN 2573-7953 WP 04-02DOI 10.26509/frbc-wp-200402
Keywords yield curve, monetary regime, business cycles
JEL Classification Codes E43, E44, G13, E52

Working Papers of the Federal Reserve Bank of Cleveland are preliminary materials circulated to stimulate discussion and critical comment on research in progress. They may not have been subject to the formal editorial review accorded official Federal Reserve Bank of Cleveland publications. The views expressed in this paper are those of the authors and do not represent the views of the Federal Reserve Bank of Cleveland or the Federal Reserve System.

Suggested Citation

Bordo, Michael D., and Joseph G. Haubrich. 2004. “The Yield Curve, Recessions, and the Credibility of the Monetary Regime.” Federal Reserve Bank of Cleveland, Working Paper No. 04-02. https://doi.org/10.26509/frbc-wp-200402