The Use of Financial Spreads As Indicator Variables: Evidence for the U.K. and Germany
IMF Working Papers, March 1, 1994
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Bibliographic details
- Authors: E. P. Davis, S. G. B. Henry
- Published: March 1, 1994
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451844986.001
Overview
- Title: The Use of Financial Spreads As Indicator Variables: Evidence for the U.K. and Germany
- Authors: E. P. Davis, S. G. B. Henry
- Date: March 1, 1994
- Summary statement: There has been growing interest in the use of financial spreads as advance indicators of real activity and inflation. Empirical evidence is marshalled on a range of spreads when these are used in vector autoregressive models of the UK and German economies. It is found that they do have significant information, even after allowing for the effects of other influences upon macro-economic activity.
- Note: Also published in Staff Papers, Vol. 41, No. 3, September 1994.
- Disclaimer: This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate.
Empirical approach
- Models used:
- Vector autoregressive models of the UK and German economies.
- Mention of Vector error correction models in subjects/keywords.
- Indicators examined:
- A range of financial spreads, including terms related to bond yield, dividend yield, yield curve, yield curve differential, and sovereign bonds.
- Controls:
- Analysis allows for the effects of other influences upon macro-economic activity.
Key findings
- Primary empirical result:
- Financial spreads "do have significant information" as advance indicators of real activity and inflation, even after accounting for other macroeconomic influences.
- Subject areas covered:
- Econometric analysis, Financial institutions, Financial services, Foreign exchange, Inflation, Prices, Real exchange rates, Sovereign bonds, Vector error correction models, Yield curve.
- Keywords (verbatim): bond yield, dividend yield, financial asset, financial spread, GDP deflator, government bond bond yield, Inflation, Real exchange rates, Sovereign bonds, spread, spreads model, transmission mechanism, Vector error correction models, WP, yield, Yield curve, yield curve differential.