Journal Article

On the predictive power of interest rates and interest rate spreads


Abstract: Economists have long understood that financial market variables contain considerable information about the future of the economy. Recently a number of researchers have pointed out that interest rates and interest rate spreads--that is, differences between interest rates on alternative financial assets--can be effective predictors of the economy. ; This finding raises a number of questions, possibly the most important being why interest rates and spreads predict the course of the economy so well. The authors tentative conclusion is that the spread between commercial paper and Treasury bill rates has historically been a good predictor because it combines information about both monetary and nonmonetary factors ~iffecting the economy, and because it does this more accurately than alternative interest rate-based measures.

Keywords: Interest rates; Forecasting;

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Bibliographic Information

Provider: Federal Reserve Bank of Boston

Part of Series: New England Economic Review

Publication Date: 1990

Issue: Nov

Pages: 51-68