E U R O P E A N C E N T R A L B A N K WORKING PAPER SERIES WORKING PAPER NO. 294 DOES THE YIELD SPREAD PREDICT RECESSIONS IN THE EURO AREA? 8 Conclusion In this paper the importance of the use of the term spread as predictor of recessions is con¯rmed also for the euro area. In particular, an analysis of the predictive content of the slope of the yield curve in di®erent parts was documented. The results of this paper show that the best predictor of recession is the spread between 10-year and 3-month interest rates. Therefore, this speci¯c yield spread appears to contain a useful information for monetary policy purposes. To arrive to this conclusion we used two non-liner model speci¯cations to forecast the probability of a recession in the euro area. http://www.ecb.int/pub/pdf/scpwps/ecbwp294.pdf
I had this published. The analysis indicates a resession. http://www.adamsmith.org/blog/tax-and-economy/a-tip-on-national-investment-analysis/
Interesting. Those two are the precise ones I use when looking at this kind of thing, as the 10 year is the proxy for mortgage rates (the average house's ownership term in the US is around 10 years) and the 3 month is pretty much considered a cash equivalent. Is 10 years the average term of ownership for a house in Europe?
1) If short-term rates are ~0%, to have a recession with an inverted yield curve implies that intermediate-term rates will go negative. :eek: 2) Suss, I didn't look at the link/paper.
I haven't read the papers, but it would seem to me that central bank buying could distort the curve and hence any conclusions.
My analysis worked on the past debt rates for a certain period then I worked out the mean average and the standard deviation to see what business cycle each country was following and then used it to predict the future debt dependency. I don't know what Martin uses.