Economics, Econometrics and Finance
3 years ago

Yield curve predicts Mexico's economic future based on term premium threshold.

The Yield Curve as a Predictor of Economic Activity in Mexico: The Role of the Term Premium
Raúl Ibarra-Ramírez

Paper Summary

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The article examines if the slope of the yield curve can predict future economic activity in Mexico from 2004 to 2019. They look at whether this relationship depends on the term premium. The main results show that the yield curve can predict economic activity when the term premium is above a certain threshold. Additionally, the yield curve can predict the likelihood of an economic contraction in the future when the term premium is above a specific threshold. The estimated threshold value varies based on the forecast horizon and the economic activity measure.