The latest edition of the Federal Reserve Bank of New York’s Current Issues in Economics and Finance, The Yield Curve as a Leading Indicator: Some Practical Issues, is available.
Authors Arturo Estrella and Mary R. Trubin examine the use of the yield curve as a forecasting tool and offer practical guidelines on how best to construct the yield curve indicator and interpret it in real time. Observing that much of the scholarly literature in this area has focused on the yield curve as an indicator of past recessions, the authors offer six key guidelines to economists and analysts on the best methodology for using the curve to predict recessions in real time. The guidelines are summarized in the article’s final section.
Arturo Estrella is a senior vice president in the Capital Markets Function of the Research and Statistics Group; Mary R. Trubin, formerly an economist in the Capital Markets Function, is entering the Ph.D. program in economics at Northwestern University.