Are financial spreads useful indicators of future inflation and output growth in EU countries?

How Stable is the Predictive Power of the Yield Curve? Evidence from Germany and the United States

“…Estrella and Hardouvelis (1991) look explicitly at the question of the "optimum" horizon and find that the results are most significant between 4 and 6 quarters ahead. Similar analyses, with consistent results, have been presented by Bomhoff (1994), Davis and Henry (1994), and Davis and Fagan (1997). Kozicki (1997) and Dotsey (1998) have recently surveyed this literature.…”

“…Although the motivation for these relationships is more complex than in the case of inflation, the reported results have tended to be statistically stronger. These results have been confirmed and extended by other researchers, for example, Bomhoff (1994), Davis and Henry (1994), Gamber (1996), Davis and Fagan (1997), Mishkin (1997, 1998), Kozicki (1997), Bernard andGerlach (1998), andFilardo (1999).…”

Predictive power of Markovian models: Evidence from US recession forecasting

“…Wright () reports that a probit model including the federal funds rate and the 10‐year over 3‐month term spread provides a better in‐sample fit, as well as out‐of‐sample predictive performance, than regressions using only the term spread. Junk bond spread. Junk bond spread is similar to the explanatory variable “credit quality spread” in Davis and Fagan (). It represents the market's assessment of default risk between the yield on noninvestment grade bonds and government bonds of the same maturity.…”

Financial Predictors of Real Activity and the Propagation of Aggregate Shocks

“…Guha and Hiris (2002) show that the credit spread (the term they use for the EFP on bond markets) is significantly higher during recessions than during expansions and that its turning points contain significant information about future turning points of the U.S. business cycle. Complementing the results of de Bondt (2004) for the euro area, Davis and Fagan (1997) show that the long-term private-public bond spread leads output growth in Denmark and the UK, but not in Germany (these are the three countries for which they had data on the EFP). Interest rate spreads between lending and deposit rates are, for example, applied by Shan and Morris (2002).…”