Unlocking the Future: Yield Spread Predicts Interest Rate Changes
The article explores how changes in interest rates can be predicted by looking at the difference between long-term and short-term interest rates. The researchers suggest that traditional models may not capture this relationship accurately, especially during times of high uncertainty. By using a new model that considers investors' risk aversion, they found that the difference in interest rates can indeed help predict future interest rate changes, especially when there are surprises in monetary policy.