Download or read book How Stable is the Predictive Power of the Yield Curve? Evidence from Germany and the United States written by Arturo Estrella and published by . This book was released on 2006 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: Empirical research over the last decade has uncovered predictive relationships between the slope of the yield curve and subsequent real activity and inflation. Some of these relationships are highly significant, but their theoretical motivations suggest that they may not be stable over time. We use recent econometric techniques for break testing to examine whether the empirical relationships are in fact stable. We consider continuous models, which predict either economic growth or inflation, and binary models, which predict either recessions or inflationary pressure. In each case, we draw on evidence from Germany and the United States. Models that predict real activity are more stable than those that predict inflation, and binary models are more stable than continuous models. The model that predicts recessions is stable over our full sample period in both Germany and the United States.