Predicting real activity and inflation developments based one the slope of the yield curve
What is it about?
The slope of the yield curve is shown to be a good indicator of subsequent real activity and inflation. Models that predict real activity are somewhat more stable than those that predict inflation, and binary models -- predicting either recessions of inflation pick-ups -- are more stable than continuous models.
Why is it important?
The use of the slope of the yield curve to predict recessions may be employed with a certain confidence in their continued reliability.
The following have contributed to this page: Dr Sebastian Schich