structural breaks
GDP Growth Predictions through the Yield Spread. Time-Variation and Structural Breaks
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JEL code(s)
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C22 Single Equation Models; Single Variables: Time-Series Models
C32 Multiple or Simultaneous Equation Models: Time-Series Models C53 Forecasting and Other Model Applications E37 Prices, Business Fluctuations, and Cycles: Forecasting and Simulation E43 Determination of Interest Rates; Term Structure of Interest Rates E47 Money and Interest Rates: Forecasting and Simulation |
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Date published:
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February 1, 2011
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Abstract:
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We use TVP models and real-time data to describe the evolution of the leading properties of the yield spread for output growth in five European economies and in the US over the last decades and until the third quarter of 2010. We evaluate the predictive performance of benchmark term-structure models and identify structural breaks in the marginal processes of term spreads and government bond yields to shed light on the dynamic characteristics of the yield curve. Econometric analysis shows that: (i) the predictive content of the term spread is not always significant over time and across countries; (ii) the spread significantly contributes to the forecast performance of simple growth regressions in Europe, but not in the US in recent years; (iii) the variance of the random shocks to the term spreads tends to fall in all countries. This decline is accompanied by vanishing leading properties from the mid-1990s. Such properties reappear after 2008.
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Paper:
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Granger Causality of the Inflation-Growth Mirror in Accession Countries
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Series Number:
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EABCN/CEPR Discussion Paper 13/2005
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Date published:
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January 1, 2005
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Abstract:
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The Paper presents a model in which the exogenous money supply causes changes in the inflation rate and the output growth rate. While inflation and growth rate changes occur simultaneously, the inflation acts as a tax on the return to human capital and in this sense induces the growth rate decrease. Shifts in the model’s credit sector productivity cause shifts in the income velocity of money that can break the otherwise stable relation between money, inflation, and output growth. Applied to two accession countries, Hungary and Poland, a VAR system is estimated for each that incorporates endogenously determined multiple structural breaks. Results indicate Granger causality positively from money to inflation and negatively from inflation to growth for both Hungary and Poland, as suggested by the model, although there is some feedback to money for Poland. Three structural breaks are found for each country that are linked to changes in velocity trends, and to the breaks found in the other country.
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Paper:
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Download the paper [364.82 KB]
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