{"id":264710,"date":"2024-11-17T10:03:43","date_gmt":"2024-11-17T10:03:43","guid":{"rendered":"https:\/\/michigandigitalnews.com\/index.php\/2024\/11\/17\/structural-breaks-in-the-term-spread-gdp-growth-relationship\/"},"modified":"2025-06-25T17:10:28","modified_gmt":"2025-06-25T17:10:28","slug":"structural-breaks-in-the-term-spread-gdp-growth-relationship","status":"publish","type":"post","link":"https:\/\/michigandigitalnews.com\/index.php\/2024\/11\/17\/structural-breaks-in-the-term-spread-gdp-growth-relationship\/","title":{"rendered":"Structural Breaks in the Term Spread-GDP Growth Relationship"},"content":{"rendered":"

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Following up on the examination<\/a> of what the term spread predicts, here\u2019s the slope coefficients for the term spread, in regressions augmented with short rate, from 1946-2023Q3 (GDP growth 1947-2024Q3).<\/p>\n

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Figure 1:<\/strong> Regression coefficient of GDP growth lead 4 quarters on 10yr-3mo spread for subsamples. + (***) indicates significance at 11% (1%) msl, using Newey-West standard errors. Source: Author\u2019s calculations.<\/em><\/p>\n

The overall least-squares break regression result (Bai-Perron) is:<\/p>\n

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If one runs a simple OLS regression on the last subsample (1984Q2-2023Q3), the adjusted-R2<\/sup> is only 0.04. The prediction looks like the following:<\/p>\n

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Figure 2:<\/strong> Year-on-Year GDP growth rate (blue) and predicted (tan). NBER defined peak-to-trough recession dates shaded gray.<\/em><\/p>\n

Clearly, the term spread Compare with the middle period identified by the Bai-Perron method:<\/p>\n

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Figure 3:<\/strong> Year-on-Year GDP growth rate (blue) and predicted (tan). NBER defined peak-to-trough recession dates shaded gray.<\/em><\/p>\n

These results suggest that the term spread is not currently a great predictor of growth (although it may become so again in the future).<\/p>\n<\/p><\/div>\n

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