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ON THE PREDICTIVE POWER OF THE YIELD SPREAD FOR FUTURE GROWTH AND RECESSION: THE TURKISH CASE

Yıl 2013, Cilt: 1 Sayı: 2, 74 - 91, 07.07.2015
https://doi.org/10.18825/iremjournal.109062

Öz

This paper investigates the predictive power of the yield spread on future industrial production growth and recession in Turkey.  Employing the linear regression model we find that the yield spread has predictive power when forecasting industrial production growth. The results also suggest that in the inflation targeting monetary policy period, predictive power of the yield spread has increased. Furthermore, we investigate whether the yield spread predicts  recession by employing a probit model. Since no official recessions are available in Turkey, we determine the recessions using the BBQ methodology. The findings suggest that the yield spread predicts the recessions almost one year ahead.

Kaynakça

  • Ang, A., Piazzesi, M., & Wei, M. 2006. What does the yield curve tell us about GDP growth? Journal of Econometrics, 131: 359-403.
  • Ataberk, A., Çoşar, E.E., & Şahinöz, S. 2005. A composite leading indicator for Turkish economic activity. Emerging Markets Finance and Trade, 41: 45-64.
  • Bansal, R., & Zhou, H. 2002. Term structure of interest rates with regime shifts. Journal of Finance, 57: 1997-2043.
  • Bernard, H., & Gerlach, S. 1998. Does the term structure predict recessions? The international evidence. International Journal of Finance & Economics, 3: 195–215.
  • Bonser C., Morley.R.N., & Morley.R.T. 1997. Does the yield spread predict real economic activity? A multicountryanalysis. Economic Review of Federal Reserve Bank of Kansas City,
  • Third Quarter:37-53.
  • Bordo, M. D., & Haubrich, J. G. 2004. The yield curve, recessions, and the credibility of the monetary regime: long-run evidence 1875-1997, Working Paper, No. 0402, Federal Reserve Bank of Cleveland.
  • Bry, G., & Boschan, C. 1971. Cyclical Analysis of Time Series: Selected Procedures and Computer Programs. New York, NBER.
  • Chauvet, M., & Potter, S. 2002. Predicting a recession: evidence from the yield curve in the presence of structural breaks. Economics Letters, 77:245–253.
  • Chinn,M. D., & Kucko, K. J. 2010. The predictive power of the yield curve across countries and time. NBER Working Paper, No: 16398.
  • Dai, Q., Singleton, K.J., & Yang, W. (2003)“Regime shifts in a dynamic term structure model of U.S. treasury bond yields.” Stanford GSB working paper.
  • Estrella, A. 2005. Why does the yield curve predict output and inflation? Economic Journal, 115:722-744.
  • Estrella, A., Rodrigues, A. P. & Schich. S. 2003. How stable is the predictive power of the yield curve? Evidence from Germany and the United States. The Review of Economics and Statistics, 85:629-644.
  • Estrella, A., & Hardouvelis, G.A. 1991. The term structure as a predictor of real economic activity. Journal of Finance, 46:555–576.
  • Estrella, A., & Mishkin, F.S. 1998. Predicting US recessions: financial variables as leading indicators. Review of Economics and Statistics, 80:45–61.
  • Evgenidis A., & Siriopoulos, C. 2014. Does the yield spread retain its forecasting ability during the 2007 recession? A comparative analysis, Applied Economics Letters, DOI:
  • 1080/13504851.2014.884694
  • Filardo, A. J., & Gordon, S. F. 1998. Business cycle durations. Journal of econometrics, 85: 99-123.
  • Friedman, B. M., & Kuttner, K. N. 1991. Indicator properties of the paper-bill spread: lessons from recent experience. The Review of Economics and Statistics, 80: 34- 44.
  • Galbraith, J.W., & Tkacz, G. 2000. Testing for asymmetry in the link between the yield spread and output in the G-7 countries. Journal of International Money and Finance, 19: 657-672.
  • Gamber, E.N. 1996. The policy content of the yield curve slope. Review of Financial Economics, 5:193-179.
  • Hamilton, J. D. 1989. A new approach to the economic analysis of nonstationary time series and the business cycle. Econometrica, 57: 375–384.
  • Hamilton, J. D. 1990. Analysis of time series subject to changes in regime. Journal of Econometrics, 45: 39–70.
  • Harding, D., & Pagan, A.R. 2002. Dissecting the cycle: a methodological investigation. Journal of Monetary Economics, 49:365-381.
  • Harvey, C.R. 1988. The real term structure and consumption growth. Journal of Financial Economics, 22:305–333.
  • Ivanova, D., Lahiri, K. & Seitz, F. 2000. Interest rate spreads as predictors of German inflation and business cycles. International Journal of Forecasting, 16:39-58.
  • Kaya, H., & Yazgan, M.E. 2011. Has ‘inflation targeting’ increased the predictive power of term structure about future inflation: evidence from Turkish experience. Applied Financial
  • Economics, 21: 1539-1547.
  • Kim, K.A., & Limpaphayom, P. 1997. The effect of economic regimes on the relation between term structure and real activity in Japan. Journal of Economic and Business, 49:379–
  • -
  • Koeda, J. 2011. How Does Yield Curve Predict GDP Growth? A Macro-Finance Approach Revisited. CARF Working Paper, CARF-F-237.
  • Kozicki, S., & Tinsley, P. A. 2002. Dynamic specifications in optimizing trend deviation macro models. Journal of Economic Dynamics and Control, 26: 1585–1611.
  • Lint, R., & Stolin, D. 2003. The Predictive Power of the Yield Curve: A Theoretical Assessment. Journal of Monetary Economics, 50:1603-1622.
  • Moersh, P., & Pohl, A. 2011. Predicting recessions with the term spread - recent evidence from seven countries. Applied Economic Letters, 18: 1285-1288.
  • Montea, F. 2005. Does the Yield Spread Predict Recessions in the Euro Area? International Finance, 8:263–301
  • Nakaota, H. 2005. The term structure of interest rates in Japan: the predictability of economic activity. Japan and the World Economy, 17:311–326.
  • Nyberg, H. 2010. Dynamic Probit Models and Financial Variables in Recession Forecasting. Journal of Forecast, 29: 215–230.
  • Pagan, A. 2010. Can Turkish recession be predicted? Tüsiad-Koç university economic research forum working paper series, Working Paper 1027.
  • Paya, I., Venetis, I. A. & Peel, D. A. 2004. Asymmetry in the link between the yield spread and industrial production. threshold effects and forecasting, Working Papers. Serie AD 2004-41, InstitutoValenciano de InvestigacionesEconómicas, S.A. (Ivie).
  • Peel, D. A., & Ioannidis, C. 2003. Empirical evidence on the relationship between the term structure of interest rates and future real output changes when there are changes in policy
  • regimes. Economics Letters, 7:147–152.
  • Peel, D. A., & Taylor, M P. 1998. The slope of the yield curve and real economic activity: tracing the transmission mechanism. Economic Letters, 59:353–360.
  • Plosser, C.I., & Rouwenhorst, K.G. 1994. International term structures and real economic growth. Journal of Monetary Economics, 33:133–155.
  • Saltoğlu, B., Senyuzve Z., & Yoldas, E. 2003. Modeling Business Cycles with Markov Switching VAR Model: An Application on Turkish Business Cycles. METU Conference in Economics VII September 6-9, 2003, Ankara, Turkey.
  • Stock, H.J., & Watson, M.W. 2010. Estimating turning points using large data sets. NBER Working Paper, No. 16532.
  • Tastan, H., & Yıldırım, N. 2008. Business cycle asymmetries in Turkey: an application of markov-switching autoregressions. International Economic Journal, 22: 315-333.
  • Taylor, J.B. 1993. Discretion versus policy rules in practice. Carnegie-Rochester Conference Series on Public Policy, 39: 195–214.
  • Telatar, E., Telatar, F., & Ratti, R. A. 2003. On the predictive power of the term structure of interest rates for future inflation changes in the presence of political instability: The Turkish economy. Journal of Policy Modeling, 25: 931--946.
  • Uygur, E. 2010. The global crises and the Turkish economy, Turkish Economic Association Discussion Paper, No: 2010/3.
  • Wright, Jonathan. 2006, The Yield Curve and Predicting Recessions. Finance and Economic Discussion Series No. 2006‐07, Federal Reserve Board.
Yıl 2013, Cilt: 1 Sayı: 2, 74 - 91, 07.07.2015
https://doi.org/10.18825/iremjournal.109062

Öz

Kaynakça

  • Ang, A., Piazzesi, M., & Wei, M. 2006. What does the yield curve tell us about GDP growth? Journal of Econometrics, 131: 359-403.
  • Ataberk, A., Çoşar, E.E., & Şahinöz, S. 2005. A composite leading indicator for Turkish economic activity. Emerging Markets Finance and Trade, 41: 45-64.
  • Bansal, R., & Zhou, H. 2002. Term structure of interest rates with regime shifts. Journal of Finance, 57: 1997-2043.
  • Bernard, H., & Gerlach, S. 1998. Does the term structure predict recessions? The international evidence. International Journal of Finance & Economics, 3: 195–215.
  • Bonser C., Morley.R.N., & Morley.R.T. 1997. Does the yield spread predict real economic activity? A multicountryanalysis. Economic Review of Federal Reserve Bank of Kansas City,
  • Third Quarter:37-53.
  • Bordo, M. D., & Haubrich, J. G. 2004. The yield curve, recessions, and the credibility of the monetary regime: long-run evidence 1875-1997, Working Paper, No. 0402, Federal Reserve Bank of Cleveland.
  • Bry, G., & Boschan, C. 1971. Cyclical Analysis of Time Series: Selected Procedures and Computer Programs. New York, NBER.
  • Chauvet, M., & Potter, S. 2002. Predicting a recession: evidence from the yield curve in the presence of structural breaks. Economics Letters, 77:245–253.
  • Chinn,M. D., & Kucko, K. J. 2010. The predictive power of the yield curve across countries and time. NBER Working Paper, No: 16398.
  • Dai, Q., Singleton, K.J., & Yang, W. (2003)“Regime shifts in a dynamic term structure model of U.S. treasury bond yields.” Stanford GSB working paper.
  • Estrella, A. 2005. Why does the yield curve predict output and inflation? Economic Journal, 115:722-744.
  • Estrella, A., Rodrigues, A. P. & Schich. S. 2003. How stable is the predictive power of the yield curve? Evidence from Germany and the United States. The Review of Economics and Statistics, 85:629-644.
  • Estrella, A., & Hardouvelis, G.A. 1991. The term structure as a predictor of real economic activity. Journal of Finance, 46:555–576.
  • Estrella, A., & Mishkin, F.S. 1998. Predicting US recessions: financial variables as leading indicators. Review of Economics and Statistics, 80:45–61.
  • Evgenidis A., & Siriopoulos, C. 2014. Does the yield spread retain its forecasting ability during the 2007 recession? A comparative analysis, Applied Economics Letters, DOI:
  • 1080/13504851.2014.884694
  • Filardo, A. J., & Gordon, S. F. 1998. Business cycle durations. Journal of econometrics, 85: 99-123.
  • Friedman, B. M., & Kuttner, K. N. 1991. Indicator properties of the paper-bill spread: lessons from recent experience. The Review of Economics and Statistics, 80: 34- 44.
  • Galbraith, J.W., & Tkacz, G. 2000. Testing for asymmetry in the link between the yield spread and output in the G-7 countries. Journal of International Money and Finance, 19: 657-672.
  • Gamber, E.N. 1996. The policy content of the yield curve slope. Review of Financial Economics, 5:193-179.
  • Hamilton, J. D. 1989. A new approach to the economic analysis of nonstationary time series and the business cycle. Econometrica, 57: 375–384.
  • Hamilton, J. D. 1990. Analysis of time series subject to changes in regime. Journal of Econometrics, 45: 39–70.
  • Harding, D., & Pagan, A.R. 2002. Dissecting the cycle: a methodological investigation. Journal of Monetary Economics, 49:365-381.
  • Harvey, C.R. 1988. The real term structure and consumption growth. Journal of Financial Economics, 22:305–333.
  • Ivanova, D., Lahiri, K. & Seitz, F. 2000. Interest rate spreads as predictors of German inflation and business cycles. International Journal of Forecasting, 16:39-58.
  • Kaya, H., & Yazgan, M.E. 2011. Has ‘inflation targeting’ increased the predictive power of term structure about future inflation: evidence from Turkish experience. Applied Financial
  • Economics, 21: 1539-1547.
  • Kim, K.A., & Limpaphayom, P. 1997. The effect of economic regimes on the relation between term structure and real activity in Japan. Journal of Economic and Business, 49:379–
  • -
  • Koeda, J. 2011. How Does Yield Curve Predict GDP Growth? A Macro-Finance Approach Revisited. CARF Working Paper, CARF-F-237.
  • Kozicki, S., & Tinsley, P. A. 2002. Dynamic specifications in optimizing trend deviation macro models. Journal of Economic Dynamics and Control, 26: 1585–1611.
  • Lint, R., & Stolin, D. 2003. The Predictive Power of the Yield Curve: A Theoretical Assessment. Journal of Monetary Economics, 50:1603-1622.
  • Moersh, P., & Pohl, A. 2011. Predicting recessions with the term spread - recent evidence from seven countries. Applied Economic Letters, 18: 1285-1288.
  • Montea, F. 2005. Does the Yield Spread Predict Recessions in the Euro Area? International Finance, 8:263–301
  • Nakaota, H. 2005. The term structure of interest rates in Japan: the predictability of economic activity. Japan and the World Economy, 17:311–326.
  • Nyberg, H. 2010. Dynamic Probit Models and Financial Variables in Recession Forecasting. Journal of Forecast, 29: 215–230.
  • Pagan, A. 2010. Can Turkish recession be predicted? Tüsiad-Koç university economic research forum working paper series, Working Paper 1027.
  • Paya, I., Venetis, I. A. & Peel, D. A. 2004. Asymmetry in the link between the yield spread and industrial production. threshold effects and forecasting, Working Papers. Serie AD 2004-41, InstitutoValenciano de InvestigacionesEconómicas, S.A. (Ivie).
  • Peel, D. A., & Ioannidis, C. 2003. Empirical evidence on the relationship between the term structure of interest rates and future real output changes when there are changes in policy
  • regimes. Economics Letters, 7:147–152.
  • Peel, D. A., & Taylor, M P. 1998. The slope of the yield curve and real economic activity: tracing the transmission mechanism. Economic Letters, 59:353–360.
  • Plosser, C.I., & Rouwenhorst, K.G. 1994. International term structures and real economic growth. Journal of Monetary Economics, 33:133–155.
  • Saltoğlu, B., Senyuzve Z., & Yoldas, E. 2003. Modeling Business Cycles with Markov Switching VAR Model: An Application on Turkish Business Cycles. METU Conference in Economics VII September 6-9, 2003, Ankara, Turkey.
  • Stock, H.J., & Watson, M.W. 2010. Estimating turning points using large data sets. NBER Working Paper, No. 16532.
  • Tastan, H., & Yıldırım, N. 2008. Business cycle asymmetries in Turkey: an application of markov-switching autoregressions. International Economic Journal, 22: 315-333.
  • Taylor, J.B. 1993. Discretion versus policy rules in practice. Carnegie-Rochester Conference Series on Public Policy, 39: 195–214.
  • Telatar, E., Telatar, F., & Ratti, R. A. 2003. On the predictive power of the term structure of interest rates for future inflation changes in the presence of political instability: The Turkish economy. Journal of Policy Modeling, 25: 931--946.
  • Uygur, E. 2010. The global crises and the Turkish economy, Turkish Economic Association Discussion Paper, No: 2010/3.
  • Wright, Jonathan. 2006, The Yield Curve and Predicting Recessions. Finance and Economic Discussion Series No. 2006‐07, Federal Reserve Board.
Toplam 50 adet kaynakça vardır.

Ayrıntılar

Birincil Dil İngilizce
Bölüm MAKALELER
Yazarlar

Hüseyin Kaya Bu kişi benim

Yayımlanma Tarihi 7 Temmuz 2015
Gönderilme Tarihi 7 Temmuz 2015
Yayımlandığı Sayı Yıl 2013 Cilt: 1 Sayı: 2

Kaynak Göster

APA Kaya, H. (2015). ON THE PREDICTIVE POWER OF THE YIELD SPREAD FOR FUTURE GROWTH AND RECESSION: THE TURKISH CASE. International Review of Economics and Management, 1(2), 74-91. https://doi.org/10.18825/iremjournal.109062