This paper investigates why the slope of the yield curve predicts future economic activity in Germany and the United States. A structural VAR is used to identify aggregate supply, aggregate demand, monetary policy and inflation scare shocks and to analyze their effects on the real, nominal and...

This letter evaluates two types of forecasts from probit models that use the slope of the yield curve (“term spread”) to forecast NBER recessions, using an evaluation toolkit common in statistics and meteorology. The probit models provide excellent non-probabilistic yes/no predictions of...