Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/107645
Authors: 
Schock, Matthias
Year of Publication: 
2014
Series/Report no.: 
Discussion Paper, Wirtschaftswissenschaftliche Fakultät, Leibniz University of Hannover 532
Abstract: 
An OLS and probit framework is used to examine the predictive power of yield spreads with respect to GDP growth and recessions in the Eurozone from the 1990s to the recent past. Credit default swap (CDS) data on sovereign bonds, which provide a direct measure of default risk, are employed as part of a new risk-adjustment method that significantly enhances the predictive accuracy of the yield-spread approach. The results show that the accuracy of predictions of growth and recessions using the commonly employed yield spread remains high, provided that biases associated with Eurozone sovereign default risk are accounted for.
Subjects: 
yield curve
CDS spreads
economic activity
JEL: 
G1
E37
E43
E44
Document Type: 
Working Paper

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