An empirical analysis of information in the yield spread on future recessions in Japan

Authors: Hasegawa, Masashi1; Fukuta, Yuichi2

Source: Applied Economics, Volume 43, Number 15, June 2011 , pp. 1865-1881(17)

Publisher: Routledge, part of the Taylor & Francis Group

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Abstract:

This article examines whether the yield spread contains information on the likelihood of future economic recessions using a probit model by taking the stability of the relationship between the yield spread and future recessions into account. We also compare the accuracy of information in the yield spread with stock returns and money supply. We find the following results in this article. First, a structural change in the relationship between the yield spread and future recessions occur at the end of 1996. Second, whereas the Japanese yield spread contains more precise information on future recessions than stock returns and nominal money supply before the structural break, we cannot predict future recessions using the yield spread after the break. Third, the money supply does not forecast future recessions for the entire sample period.

Document Type: Research Article

DOI: http://dx.doi.org/10.1080/00036840902780136

Affiliations: 1: Mitsubishi UFJ Trust and Banking, Tokyo, Japan 2: Graduate School of Economics, Osaka University, Toyonaka, 560-0043 Japan

Publication date: June 1, 2011

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