Browsing by Author "Schuch, Raphael"
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- The power of the yield curve prediction : an analysis of the yield curve prediction for recessions in the eurozone between 2004 and 2024Publication . Schuch, Raphael; Silva, JoanaThis dissertation examines the predictive power of the yield curve (10Y-3M spread triple-A rated government bonds) as a leading indicator of recessions in the Eurozone in the period 2004- 2024. In the economic literature, an inverted yield curve is considered a reliable signal of impending recessions but the monetary policy interventions of the European Central Bank (ECB) after the 2008 financial crisis may have distorted this relationship. Probit models are used to analyze whether the 10Y-3M spread continues to have significant predictive power for recessions and to what extent macroeconomic indicators such as inflation (HICP) and economic growth (GDP growth) influence this effect. The results show that the spread continues to act as a leading indicator for recessions, but that its predictive power was weakened after 2008. In addition, the analysis shows that strong economic growth reduces the predictive power of the spread, while high inflation strengthens this effect. Robustness tests, including a logit model, time lags (t-3, t-6), an AUC-ROC and McFadden R² test, confirm that while the yield curve remains a useful indicator, it should no longer be considered in isolation. The results have far reaching implications for monetary policy and financial markets: the ECB should take greater account of alternative indicators such as labor market and credit market data, while investors should include additional macroeconomic factors in their recession forecasts.