{"title":"The Yield Spread as a Predictor of Economic Activity in Mexico: The Role of the Term Premium","authors":"Raul Ibarra","doi":"10.31389/eco.415","DOIUrl":null,"url":null,"abstract":"This paper analyzes whether there exists a relationship between the slope of the yield curve and future economic activity in Mexico for the period 2004–2019. In particular, we evaluate whether such a relationship depends on the term premium. For this purpose, we estimate a threshold model in which the relationship between the yield spread and economic activity, measured as either output growth or the probability of a contraction, depends on whether the term premium is above or below a certain threshold. The main results indicate that the slope of the yield curve seems to anticipate the behavior of economic activity only when the term premium is above a threshold. Our results also suggest that the slope of the yield curve has predictive power over the probability of facing a contraction in the future only when the term premium is above a threshold. JEL Classification Codes: C53, E32, E37, E43","PeriodicalId":44815,"journal":{"name":"Economia-Journal of the Latin American and Caribbean Economic Association","volume":null,"pages":null},"PeriodicalIF":1.2000,"publicationDate":"2023-10-05","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"0","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"Economia-Journal of the Latin American and Caribbean Economic Association","FirstCategoryId":"1085","ListUrlMain":"https://doi.org/10.31389/eco.415","RegionNum":0,"RegionCategory":null,"ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"Q3","JCRName":"ECONOMICS","Score":null,"Total":0}
引用次数: 0
Abstract
This paper analyzes whether there exists a relationship between the slope of the yield curve and future economic activity in Mexico for the period 2004–2019. In particular, we evaluate whether such a relationship depends on the term premium. For this purpose, we estimate a threshold model in which the relationship between the yield spread and economic activity, measured as either output growth or the probability of a contraction, depends on whether the term premium is above or below a certain threshold. The main results indicate that the slope of the yield curve seems to anticipate the behavior of economic activity only when the term premium is above a threshold. Our results also suggest that the slope of the yield curve has predictive power over the probability of facing a contraction in the future only when the term premium is above a threshold. JEL Classification Codes: C53, E32, E37, E43