Yield spread as a leading indicator of real economic activity: an empirical exercise on the Indian economy, Issues 2002-2091
International Monetary Fund, 2002 - Business & Economics - 19 pages
There is growing evidence that the yield spread could serve as a leading indicator of real economic activity. This paper is an attempt to test this hypothesis for the Indian economy by relating movements in the yield spread in the government securities market to movements in the index of industrial production. The results show that yield spread could, inter alia, be considered as a leading indicator of industrial activity in India.
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association between yield Aug Dec Apr contain t statistics current period cut-off yields emergence of yield estimate probability Estimates of Probability Estrella and Hardouvelis fall/rise fixed capital forecasting found the evidence Function of Yield future real economic Government dated securities Government securities markets granger cause WCL Hardouvelis 1991 IIP equal Indian context Indian Financial Markets industrial activity Industrial Growth Rate industrial output industrial slowdown interest rate risk introduction of auction Investment/Production Decisions leading indicators long-term market determined monetary policy money market nominal interest rate null hypothesis Open Market Operations out-of-sample estimates Parentheses contain percent level primary auctions Primary Dealers Probability of Industrial probit model production function real economic activity real output relationship between yield residual maturity root test rupee yield curve secondary market yields short-term interest rates short-term rate slope of yield spread and real term structure treasury bills Unit root United Kingdom yields truly reflect