lecture4_yield_curve_case.pdf.pdf

5-Yr vs. 3-Mo Inversion Drew Headlines in December Schwert (Wharton) Yield Curve and Growth January 30, 2019 2 / 18 The Yield Curve on January 29, 2019 How does the yield curve inform your view on the likely growth in U.S. Real GDP over the next year? Schwert (Wharton) Yield Curve and Growth January 30, 2019 3 / 18 Long and Short Rates and Economic Activity Schwert (Wharton) Yield Curve and Growth January 30, 2019 4 / 18 Arturo Estrella’s Perspective Estrella (NY Fed) is quite certain that the yield curve is a good predictor of future economic activity. Using information from the case, or the link to Estrella’s FAQs, answer the following questions: How successful is the yield curve at predicting recessions? What type of securities and what maturities are best to use? What matters most - the level of the term spread, the change in the spread, or the level of short rates? Discuss, in the context of a formal model, exactly why a yield curve inversion should lead to a recession.5-Yr vs. 3-Mo Inversion Drew Headlines in December Schwert (Wharton) Yield Curve and Growth January 30, 2019 2 / 18 The Yield Curve on January 29, 2019 How does the yield curve inform your view on the likely growth in U.S. Real GDP over the next year? Schwert (Wharton) Yield Curve and Growth January 30, 2019 3 / 18 Long and Short Rates and Economic Activity Schwert (Wharton) Yield Curve and Growth January 30, 2019 4 / 18 Arturo Estrella’s Perspective Estrella (NY Fed) is quite certain that the yield curve is a good predictor of future economic activity. Using information from the case, or the link to Estrella’s FAQs, answer the following questions: How successful is the yield curve at predicting recessions? What type of securities and what maturities are best to use? What matters most - the level of the term spread, the change in the spread, or the level of short rates? Discuss, in the context of a formal model, exactly why a yield curve inversion should lead to a recession.