Gogas, Periklis and Pragkidis, Ioannis (2010): The interest rate spread as a forecasting tool of greek industrial production. Forthcoming in: International Journal of Business Policy and Economics
Download (235kB) | Preview
Several studies have established the predictive power of the yield curve, i.e.: the difference between long and short term bond rates, in terms of real economic activity, for the U.S. and various European countries. In this paper we use monthly data of the industrial production index of the Greek economy ranging from January 2000 to December 2008 and we calculate the year-to-year percentage change, while the European Central Bank’s euro area government benchmark bonds of various maturities are employed for the calculation of the yield spreads. We also augment the models tested with non monetary policy variables: the Greek unemployment rate and the FTSE-100 stock index returns. The methodology employed in the effort to forecast negative year-to-year changes in the industrial production index is a probit model of the inverse cumulative distribution function of the standard distribution, using several formal forecasting and goodness of fit evaluation tests. The results show that the yield curve augmented with the composite stock index has significant forecasting power in terms of the industrial production in Greece.
|Item Type:||MPRA Paper|
|Original Title:||The interest rate spread as a forecasting tool of greek industrial production|
|Keywords:||yield spreads, industrial production, forecast, probit, greece|
|Subjects:||E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E43 - Interest Rates: Determination, Term Structure, and Effects
C - Mathematical and Quantitative Methods > C5 - Econometric Modeling > C53 - Forecasting and Prediction Methods; Simulation Methods
E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E52 - Monetary Policy
E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E44 - Financial Markets and the Macroeconomy
|Depositing User:||ioannis pragidis|
|Date Deposited:||19. Apr 2010 06:58|
|Last Modified:||15. Feb 2013 03:09|
Ang, A. Piazzesi, M., Wei, M., 2006, “What does the yield curve tell us about GDP?”, Journal of Financial Econometrics. 131, 359-403
Bonser-Neal, Catherine, and Timothy R. Morley. 1997. “Does the Yield Spread Predict Real Economic Activity? A Multicountry Analysis”, Federal Reserve Bank of Kansas City, Economic Review, Third Quarter.
Chauvet, M. and S. Potter (2001a), "Predicting a Recession: Evidence from the Yield Curve in the Presence of Structural Breaks," Working Paper, University of California, Riverside.
Cogley, T. and J.M. Nason., (1995), Effects of the Hodrick-Prescott Filter on Trend and Difference Stationary Time Series: Implications for Business Cycle Research, Journal of Economic Dynamics and Control, p. 254.
Estrella and Mishkin, 1996, “The term structure of interest rates and its role in monetary policy for the ECB”, Working paper no. 5279 (NBER, Cambridge, MA) Sept.
Estrella and Hardouvelis, 1991, “The term structure as a predictor of real economic activity”, Journal of Finance 46, no 2 June
Estrella and Mishkin, 1997, “The predictive power of the term structure of interest rates in Europe and the U.S: Implications for the ECB”, European Economic Review 41, 1375-1401
Feitosa M.A. and Tabak B.N., 2007, "Predictability Of Economic Activity Using Yield Spreads: The Case Of Brazil", Anais do XXXV Encontro Nacional de Economia [Proceedings of the 35th Brazilian Economics Meeting] 029.
Hodrick, R., and E.P. Prescott (1997), “Postwar Business Cycles: An Empirical Investigation,” Journal of Money, Credit, and Banking.
Kim, A., Limpaphayom P. (1997). The effect of economic regimes on the relationbetween term structure and real activity in Japan. Journal of Economics and Business. 49, 379-392.
Marcelle Chauvet & Simon Potter, 2005. "Forecasting recessions using the yield curve," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 24(2), pages 77-103
Nakota, H., 2005, “The term structure of interest rates in Japan: the predictability of economic activity”, Japan and the World Economy. 17, 311-326
Venetis, I. A., Paya, I., Peel, D. A., 2003, “Re examination of the predictability of economic activity using the yield spread: a non linear approach.”, International Review of Economics and Finance, 12, 187-206
Wright, J., 2006, “The yield curve and Predicting Recessions”, Finance and Economics Discussion Series, 2006-7, Federal Reserve Board