Reyna Cerecero, Mario Salazar Cavazos, Diana Salgado Banda, Héctor
Year of Publication:
Working Papers, Banco de México 2008-15
There are a significant number of papers that show that the slope of the yield curve has a certain ability to forecast real economic activity and inflation. However, in emerging economies this source of information has not been thoroughly used; Mexico is not an exception. The economic stability achieved in this country in recent years has allowed the government to issue, since 2001, long-term bonds. With more stable economic cycles, the information included in the long part of the yield curve could be a useful tool to estimate future economic activity. This document analyses the predictive power of the spread. Moreover, the spread is divided into two main components to analyse the origin of its predictive power. Next, the power of the spread to forecast economic cycles is tested. Last, out-of-sample tests of the spread are carried out. The findings show that the yield curve provides significant information about future economic activity.