The term structure as a predictor of real economic activity

Article Abstract:

A positive slope of the yield curve is associated with a future increase in real economic activity: consumption (nondurables plus services), consumer durables, and investment. It has extra predictive power over the index of leading indicators, real short-term interest rates, lagged growth in economic activity, and lagged rates of inflation. It outperforms survey forecasts, both in-sample and out-of-sample. Historically, the information in the slope reflected, inter alia, factors that were independent of monetary policy, and thus could have provided useful information both to private investors and to policy makers. (Reprinted by permission of the publisher.)

Analysis, Economic research, Economic forecasting, Economic indicators

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Reserves announcements and interest rates: Does monetary policy matter?

Article Abstract:

The author provides evidence on the perceived existence of strong liquidity effect. The analysis is based on the response of the term structure of interest rates to the weekly Federal Reserve announcements of bank reserves during the post-October 1979 period. It is shown that unanticipated changes in the mix between borrowed and nonborrowed reserves cause expected real interest rates to change after the announcement because they provide information about a future change in the supply of money. A precise model is developed and tested during subperiods of nonborrowed and borrowed reserves targeting by the Fed. (Reprinted by permission of the publisher.)

Interest rates, Monetary policy, Federal Reserve banks, Bank reserves

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The predictive power of the term structure during recent monetary regimes

Article Abstract:

I use weekly Treasury-bill rates with maturities of one to twenty-six weeks to examine the information in forward rates during the 1970s and 1980s. Forward rates contain better information about future changes in spot rates than the information captured by autoregressive and vector-autoregressive models. Forward rates also have considerable predictive power, which increased after October 1979 and remained strong after October 1982. The results show no necessary connection between interest rate predictability and the degree to which the Fed adheres to interest rate targeting. (Reprinted by permission of the publisher.)

Interest rate futures, Treasury bills

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