DP13013 The Slope of the Term Structure and Recessions: The Pre-Fed Evidence, 1857-1913

Author(s): Stefan Gerlach, Rebecca Stuart
Publication Date: June 2018
Keyword(s): Federal Reserve, Recessions, term structure
JEL(s): C25, E00, E43
Programme Areas: Economic History, Monetary Economics and Fluctuations
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=13013

This paper studies the information content of the slope of the term structure for recessions, using monthly US data spanning 1857-1913. We find that the term spread predicts future recessions up to about 12 months ahead, as does the current value of the recession dummy. We also find that stock prices are significant in the probit models we use to predict future recessions, but that business failures and growth in industrial production are generally insignificant. Overall, the results give broad support to the findings of Bordo and Haubrich (2004, 2008a, 2008b), who use quarterly data from 1875 to study the ability of the term structure to forecast real GNP growth. C25