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Working Paper

Low Interest Rates, Policy, and the Predictive Content of the Yield Curve

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Does the yield curve’s ability to predict future output and recessions differ when interest rates are low, as in the current global environment? In this paper we build on recent econometric work by Shi, Phillips, and Hurn that detects changes in the causal impact of the yield curve and relate that to the level of interest rates. We explore the issue using historical data going back to the 19th century for the United States and more recent data for the United Kingdom, Germany, and Japan. This paper is similar in spirit to Ramey and Zubairy (2018), who look at the government spending multiplier in times of low interest rates.
Topics
Econometrics modeling and forecasting
Recessions
08.06.2020ISSN 2573-7953 WP 20-24Revisions WP 20-24RDOI 10.26509/frbc-wp-202024
Keywords low interest rates, policy, predictive content of the yield curve
JEL Classification Codes E32, N10, G01

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. 2020. “Low Interest Rates, Policy, and the Predictive Content of the Yield Curve.” Federal Reserve Bank of Cleveland, Working Paper No. 20-24. https://doi.org/10.26509/frbc-wp-202024