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Working Paper

Low Interest Rates 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 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.
Topics
Econometrics, modeling, and forecasting
Monetary policy
12.20.2021ISSN 2573-7953 WP 20-24ROriginal Paper WP 20-24DOI 10.26509/frbc-wp-202024r
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. 2021. “Low Interest Rates and the Predictive Content of the Yield Curve.” Federal Reserve Bank of Cleveland, Working Paper No. 20-24R. https://doi.org/10.26509/frbc-wp-202024r