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research
How useful is the yield spread as a predictor of growth in Australia?
Authors
G Chen
B Grant
A Valadkhani
Publication date
1 January 2016
Publisher
'Emerald'
Doi
Cite
Abstract
© 2016, © Emerald Group Publishing Limited. Purpose – The purpose of this paper is to examine the usefulness of the yield spread for forecasting growth in the Australian economy since 1969. Design/methodology/approach – This paper applies time series analysis to evaluate the in-sample and out-of-sample forecasting power of the spread-growth nexus in Australia for the period spanning from 1969 to 2014. Findings – This paper concludes that the spread serves as a useful predictor of growth in output, private dwellings, private fixed capital formation, and inventories in Australia, both in-sample and out-of-sample. Its predictive content is not sensitive to the inclusion of monetary policy variables or the switch to the inflation-targeting regime by the Reserve Bank of Australia in the early 1990s. Originality/value – This paper provides significant evidence to policy makers and market participants on the usefulness of the spread in forecasting output growth for up to eight quarters ahead
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Last time updated on 13/02/2017