The Study On The Effectiveness Of Using A Treasury Yield Curve To Predict Economic Recessions

The paper researches on the relationship between the treasury yield curve information and the future economic recessions,by constructing a probit model. It is found that the slope as well as the height of U.S.treasury yield curve can well predict the upcoming economic recessions several quarters ahead.With the assistance of HP filter, the paper develops an innovative criterion to identify economic recessions,in comparison with the economic recession series publicized by other authoritative research institutions such as NBER. No matter which kind of recession identification is adopted, the treasury yield curve proves to have certain predictability over future economic recessions.Except for the treasury yield curve, whether other financial market variables can improve the accuracy of recession prediction is also examined in the paper.