Working Paper

Low Interest Rates, Policy, and the Predictive Content of the Yield Curve

Abstract: Does the yield curve’s ability to predict future output and recessions differ when interest rates are low, as in the current global environment? In this paper we build on recent econometric work by Shi, Phillips, and Hurn that detects changes in the causal impact of the yield curve and relate that to the level of interest rates. We explore the issue using historical data going back to the 19th century for the United States and more recent data for the United Kingdom, Germany, and Japan. This paper is similar in spirit to Ramey and Zubairy (2018), who look at the government spending multiplier in times of low interest rates.

Keywords: low interest rates; policy; predictive content of the yield curve;

JEL Classification: E32; G01; N10;

https://doi.org/10.26509/frbc-wp-202024

Bibliographic Information

Provider: Federal Reserve Bank of Cleveland

Part of Series: Working Papers

Publication Date: 2020-08-06

Number: 20-24

Related Works

• Working Paper Revision: Low Interest Rates and the Predictive Content of the Yield Curve