“…A notable feature of most empirical works is that the term spread-output growth relation has been modelled using a linear framework and little attention has been given to the possibility of asymmetric effects and time varying parameters. Indeed, as some recent studies have shown, based on data for the US and Canada, the term spread-output relation might not be linear and its predictive content might also have asymmetric effects, as measured in terms of a threshold on the conditional expectation of output growth (Galbraith and Tkacz, 2000) 6 . In line with these arguments, Venetis et al (2003) study the predictive power and stability of the spread-output relationship with data from the US, UK and Canada using non-linear autoregression models that can accommodate regime switching type non-linear behavior and situations of time varying parameters.…”