The Democratic Republic of the Congo represents one of the world’s most important sites for mining activities. Strategic raw materials, such as cobalt and tantalum, fuel the global electromobility movement and high-tech industries. Located in the heart of Africa multinational firms from Canada, China and other countries do currently find themselves in a run for resources. Quantifications of interdependencies between disruptions in the former Belgian colony and associated real and financial economic values of international scale are largely nonexistent and aimed for in this study. Using SVAR models and the classical event study methodology we find that risk in the Congo and events, influencing the local competitive structure of multinational firms, do significantly influence prices of strategic raw materials and internationally listed stocks.
{"title":"Strategic Raw Materials, International Mining Firms and the Democratic Republic of the Congo","authors":"Y. Soufi","doi":"10.2139/ssrn.3538761","DOIUrl":"https://doi.org/10.2139/ssrn.3538761","url":null,"abstract":"The Democratic Republic of the Congo represents one of the world’s most important sites for mining activities. Strategic raw materials, such as cobalt and tantalum, fuel the global electromobility movement and high-tech industries. Located in the heart of Africa multinational firms from Canada, China and other countries do currently find themselves in a run for resources. Quantifications of interdependencies between disruptions in the former Belgian colony and associated real and financial economic values of international scale are largely nonexistent and aimed for in this study. Using SVAR models and the classical event study methodology we find that risk in the Congo and events, influencing the local competitive structure of multinational firms, do significantly influence prices of strategic raw materials and internationally listed stocks.","PeriodicalId":101534,"journal":{"name":"Banque de France Research Paper Series","volume":"11 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-02-15","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"132008801","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Over the last decades tax rates have grown substantially and taxation systems have become more complex than ever. With this scenario in mind, this thesis aims to assess the impact of taxation on growth, through a quantitative analysis on a panel data of 24 developed economies. The results obtained show that an increase in the total tax burden by 1% is likely to slow down growth on average by the same amount over a period of 5 years. Furthermore, it appears that among single taxes, social security contributions and taxes on consumption are the most harmful for growth, while taxes on property are the least harmful. Additional tests have proven that small countries are more sensitive to tax changes than large ones. Finally, in the last chapter I identify a possible optimal tax structure capable of maximizing growth while keeping constant or even reducing income inequality (inclusive growth).
{"title":"The Impact of Taxation on Growth: A Quantitative Analysis on a Panel Data of 24 OECD Countries","authors":"Mircea Tanasie","doi":"10.2139/ssrn.3580065","DOIUrl":"https://doi.org/10.2139/ssrn.3580065","url":null,"abstract":"Over the last decades tax rates have grown substantially and taxation systems have become more complex than ever. With this scenario in mind, this thesis aims to assess the impact of taxation on growth, through a quantitative analysis on a panel data of 24 developed economies. The results obtained show that an increase in the total tax burden by 1% is likely to slow down growth on average by the same amount over a period of 5 years. Furthermore, it appears that among single taxes, social security contributions and taxes on consumption are the most harmful for growth, while taxes on property are the least harmful. Additional tests have proven that small countries are more sensitive to tax changes than large ones. Finally, in the last chapter I identify a possible optimal tax structure capable of maximizing growth while keeping constant or even reducing income inequality (inclusive growth).","PeriodicalId":101534,"journal":{"name":"Banque de France Research Paper Series","volume":"1 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-02-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"131263487","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Countries, developing as well as developed are emphasising environment sustainability of agricultural production, methods and practices. The traditional wisdom of farmers on indigenous agrarian practices increasingly being called into question owing to a host of factors. This paper tries to examine the impact of financial services especially institutional credit on the organic farming practices of tribes in Kerala. It uses primary data of 384 respondents from Kuruchya tribes in Wayanad district of Kerala. It found that the extension of formal credit is one of the chief determinants of organic farming. We observed that, majority of tribes, who have access to formal credit continue their traditional or organic farming practices. The tribes being dependent on informal/non institutional credit are mostly practicing inorganic farming methods. The determinants and predictors of organic farming differ from those of inorganic farming. In our country a large number of institutions and agencies are constituted to strengthen the credit delivery system, especially in the rural areas, but still they are not germane to meet the variety of financial needs of rural agriculture sector. This study therefore contains findings which will be helpful in formulating financial inclusion policies with more stress on credit delivery system to foster organic farming practices in rural India.
{"title":"Financial Inclusion and Organic Farming Practices of Kuruchya Tribe in Wayanad: An Empirical Study","authors":"J. Varkey","doi":"10.2139/ssrn.3536824","DOIUrl":"https://doi.org/10.2139/ssrn.3536824","url":null,"abstract":"Countries, developing as well as developed are emphasising environment sustainability of agricultural production, methods and practices. The traditional wisdom of farmers on indigenous agrarian practices increasingly being called into question owing to a host of factors. This paper tries to examine the impact of financial services especially institutional credit on the organic farming practices of tribes in Kerala. It uses primary data of 384 respondents from Kuruchya tribes in Wayanad district of Kerala. It found that the extension of formal credit is one of the chief determinants of organic farming. We observed that, majority of tribes, who have access to formal credit continue their traditional or organic farming practices. The tribes being dependent on informal/non institutional credit are mostly practicing inorganic farming methods. The determinants and predictors of organic farming differ from those of inorganic farming. In our country a large number of institutions and agencies are constituted to strengthen the credit delivery system, especially in the rural areas, but still they are not germane to meet the variety of financial needs of rural agriculture sector. This study therefore contains findings which will be helpful in formulating financial inclusion policies with more stress on credit delivery system to foster organic farming practices in rural India.","PeriodicalId":101534,"journal":{"name":"Banque de France Research Paper Series","volume":"414 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-01-23","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"134319765","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
EnglishThis paper investigates whether uncertainty about economic policy plays a role in shaping the credibility and reputation of the central bank in the eyes of the general public. In particular, we look at the effect of policy uncertainty for the dynamics of citizens’ opinion, being trust, satisfaction or confidence, in the European Central Bank, the Bank of England and the Bank of Japan. Estimating Bayesian VARs for the period 1999-2014, we find that shocks to economic policy uncertainty induce economic contractions and relatively sharp deterioration in trust or satisfaction measures, which in general take longer than economic growth to re-build. francaisCet article examine dans quelle mesure l’incertitude sur la politique economique joue un role preponderant quant a la credibilite et la reputation de la banque centrale aux yeux du grand public. En particulier, nous mesurons les effets de l’incertitude politique sur l’opinion des citoyens, qu’il s’agisse de confiance ou de satisfaction, vis-a-vis de la Banque Centrale Europeenne, la Banque d’Angleterre et la Banque du Japon. Pour ce faire, nous estimons un VAR bayesien pour plusieurs pays de la zone euro (Allemagne, France, Italie, et Espagne), le Royaume-Uni et le Japon sur la periode 1999-2014. Nous constatons que les chocs lies a l’incertitude des politiques economiques entrainent des contractions economiques et une deterioration relativement prononcee de nos mesures de confiance ou de satisfaction. Suite a un tel choc, ces dernieres prennent generalement plus de temps a se reconstruire que la croissance economique.
本文调查了经济政策的不确定性是否在塑造央行在公众眼中的信誉和声誉方面发挥了作用。我们特别研究了政策不确定性对公民对欧洲央行、英国央行和日本央行的信任、满意度或信心的影响。对1999-2014年期间的贝叶斯var进行估计，我们发现经济政策不确定性的冲击导致经济收缩和信任或满意度相对急剧的恶化，这通常需要比经济增长更长的时间来重建。法国中央银行(banque centrale)的信誉和声誉是衡量政治经济不确定性的重要指标。特别是，与欧洲中央银行、英国中央银行和日本中央银行相比，这些措施对政治不确定性的影响更小，对城市意见的影响更小，对满意度的影响更小。Pour ce faire, nous estimons un VAR bayesen Pour plusieurs pays de la zone euro (Allemagne, France, italy, et Espagne)， le Royaume-Uni and le japan sur la periode 1999-2014。现有的条件是不确定的，经济政策是不确定的，经济政策是不确定的，经济政策是不确定的，经济政策是不确定的，经济政策是不确定的，经济政策是不确定的，经济政策是不确定的。Suite a un tel choc，“套房”，“套房”，“套房”，“套房”，“套房”，“套房”，“套房”，“套房”，“套房”，“套房”，“套房”，“套房”，“套房”，“套房”，“套房”。
{"title":"Public Opinion on Central Banks when Economic Policy is Uncertain","authors":"Klodiana Istrefi, Anamaria Piloiu","doi":"10.2139/ssrn.3523345","DOIUrl":"https://doi.org/10.2139/ssrn.3523345","url":null,"abstract":"EnglishThis paper investigates whether uncertainty about economic policy plays a role in shaping the credibility and reputation of the central bank in the eyes of the general public. In particular, we look at the effect of policy uncertainty for the dynamics of citizens’ opinion, being trust, satisfaction or confidence, in the European Central Bank, the Bank of England and the Bank of Japan. Estimating Bayesian VARs for the period 1999-2014, we find that shocks to economic policy uncertainty induce economic contractions and relatively sharp deterioration in trust or satisfaction measures, which in general take longer than economic growth to re-build. francaisCet article examine dans quelle mesure l’incertitude sur la politique economique joue un role preponderant quant a la credibilite et la reputation de la banque centrale aux yeux du grand public. En particulier, nous mesurons les effets de l’incertitude politique sur l’opinion des citoyens, qu’il s’agisse de confiance ou de satisfaction, vis-a-vis de la Banque Centrale Europeenne, la Banque d’Angleterre et la Banque du Japon. Pour ce faire, nous estimons un VAR bayesien pour plusieurs pays de la zone euro (Allemagne, France, Italie, et Espagne), le Royaume-Uni et le Japon sur la periode 1999-2014. Nous constatons que les chocs lies a l’incertitude des politiques economiques entrainent des contractions economiques et une deterioration relativement prononcee de nos mesures de confiance ou de satisfaction. Suite a un tel choc, ces dernieres prennent generalement plus de temps a se reconstruire que la croissance economique.","PeriodicalId":101534,"journal":{"name":"Banque de France Research Paper Series","volume":"52 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-01-09","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"131920119","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Bertrand Garbinti, P. Lamarche, Charlélie Lecanu, Frédérique Savignac
This paper studies the heterogeneity of the marginal propensity to consume out of wealth (MPC) both across and within countries. We estimate the MPC based on a cross-country harmonized household level dataset which combines surveys on wealth, income and consumption. We use panel regressions and an instrumental variable approach. First, our panel-based MPC estimates are very similar to those obtained on aggregate data and show substantial heterogeneity across countries. The wealth effect is coming both from housing and financial assets, while the main asset channel varies between countries. Second, the MPC is higher for low-wealth households, whatever the country. Third, we find some asymmetries across countries regarding the reaction to losses versus gains. Fourth, higher MPC is obtained for the two main consumption expenditure categories. Fifth, we find evidences that housing prices shock decreases consumption inequality while financial wealth shocks have a limited effect on consumption inequality. Classification-JEL: D12, E21, C21
{"title":"Wealth Effect on Consumption during the Sovereign Debt Crisis: Households Heterogeneity in the Euro Area","authors":"Bertrand Garbinti, P. Lamarche, Charlélie Lecanu, Frédérique Savignac","doi":"10.2139/ssrn.3525995","DOIUrl":"https://doi.org/10.2139/ssrn.3525995","url":null,"abstract":"This paper studies the heterogeneity of the marginal propensity to consume out of wealth (MPC) both across and within countries. We estimate the MPC based on a cross-country harmonized household level dataset which combines surveys on wealth, income and consumption. We use panel regressions and an instrumental variable approach. First, our panel-based MPC estimates are very similar to those obtained on aggregate data and show substantial heterogeneity across countries. The wealth effect is coming both from housing and financial assets, while the main asset channel varies between countries. Second, the MPC is higher for low-wealth households, whatever the country. Third, we find some asymmetries across countries regarding the reaction to losses versus gains. Fourth, higher MPC is obtained for the two main consumption expenditure categories. Fifth, we find evidences that housing prices shock decreases consumption inequality while financial wealth shocks have a limited effect on consumption inequality. Classification-JEL: D12, E21, C21","PeriodicalId":101534,"journal":{"name":"Banque de France Research Paper Series","volume":"1 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"130266088","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We quantify the impact of demographic change on real interest rates, house prices and household debt in an overlapping-generations model. Falling birth and death rates across advanced economies can explain much of the observed fall in real interest rates and the rise in house prices and household debt. Since households maintain relatively high wealth levels throughout retirement, these trends will persist as population ageing continues. Countries ageing relatively slowly, like the US, will increasingly accumulate net foreign liabilities. The availability of housing as an alternative store of value attenuates these trends, while raising the retirement age has limited effects.
{"title":"Population Ageing and the Macroeconomy","authors":"Noemie Lisack, Rana Sajedi, Gregory Thwaites","doi":"10.2139/ssrn.3511386","DOIUrl":"https://doi.org/10.2139/ssrn.3511386","url":null,"abstract":"We quantify the impact of demographic change on real interest rates, house prices and household debt in an overlapping-generations model. Falling birth and death rates across advanced economies can explain much of the observed fall in real interest rates and the rise in house prices and household debt. Since households maintain relatively high wealth levels throughout retirement, these trends will persist as population ageing continues. Countries ageing relatively slowly, like the US, will increasingly accumulate net foreign liabilities. The availability of housing as an alternative store of value attenuates these trends, while raising the retirement age has limited effects.","PeriodicalId":101534,"journal":{"name":"Banque de France Research Paper Series","volume":"1 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2019-12-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"130457676","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
In this paper, I investigate whether and how banks align green words with deeds in terms of credit allocation across more or less carbon-intensive industries in France. I use a rich dataset of bank credit exposures across some fifty industries and two size classes of borrowing firms for the main banking groups operating in France, which I merge with information on industries' greenhouse gas emission intensities and a score for banks' self-reported climate-related commitments over 2010-2017. I find evidence that higher levels of self-reported climate commitments by banks are associated with less lending to large corporates in the five brownest industries. However, lending to SMEs across more or less carbon-intensive industries remained unrelated to banks' commitments to green their business. Since SMEs are not required to report on their carbon emissions, while large firms are, these findings suggest that devising an appropriate carbon reporting framework for small firms is likely to enhance the decarbonization of bank lending.
{"title":"Banks' Climate Commitments and Credit to Brown Industries: New Evidence for France","authors":"JEAN‐STÉPHANE Mésonnier","doi":"10.2139/ssrn.3502681","DOIUrl":"https://doi.org/10.2139/ssrn.3502681","url":null,"abstract":"In this paper, I investigate whether and how banks align green words with deeds in terms of credit allocation across more or less carbon-intensive industries in France. I use a rich dataset of bank credit exposures across some fifty industries and two size classes of borrowing firms for the main banking groups operating in France, which I merge with information on industries' greenhouse gas emission intensities and a score for banks' self-reported climate-related commitments over 2010-2017. I find evidence that higher levels of self-reported climate commitments by banks are associated with less lending to large corporates in the five brownest industries. However, lending to SMEs across more or less carbon-intensive industries remained unrelated to banks' commitments to green their business. Since SMEs are not required to report on their carbon emissions, while large firms are, these findings suggest that devising an appropriate carbon reporting framework for small firms is likely to enhance the decarbonization of bank lending.","PeriodicalId":101534,"journal":{"name":"Banque de France Research Paper Series","volume":"472 1 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2019-11-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"115762869","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Abstract We incorporate external information extracted from the European Central Bank’s Survey of Professional Forecasters into the predictions of a Bayesian VAR using entropic tilting and soft conditioning. The resulting conditional forecasts significantly improve the plain BVAR point and density forecasts. Importantly, we do not restrict the forecasts at a specific quarterly horizon but their possible paths over several horizons jointly since the survey information comes in the form of one- and two-year-ahead expectations. As well as improving the accuracy of the variable that we target, the spillover effects on “other-than-targeted” variables are relevant in size and are statistically significant. We document that the baseline BVAR exhibits an upward bias for GDP growth after the financial crisis, and our results provide evidence that survey forecasts can help mitigate the effects of structural breaks on the forecasting performance of a popular macroeconometric model.
{"title":"Bayesian VAR Forecasts, Survey Information and Structural Change in the Euro Area","authors":"G. Gánics, Florens Odendahl","doi":"10.2139/ssrn.3474891","DOIUrl":"https://doi.org/10.2139/ssrn.3474891","url":null,"abstract":"Abstract We incorporate external information extracted from the European Central Bank’s Survey of Professional Forecasters into the predictions of a Bayesian VAR using entropic tilting and soft conditioning. The resulting conditional forecasts significantly improve the plain BVAR point and density forecasts. Importantly, we do not restrict the forecasts at a specific quarterly horizon but their possible paths over several horizons jointly since the survey information comes in the form of one- and two-year-ahead expectations. As well as improving the accuracy of the variable that we target, the spillover effects on “other-than-targeted” variables are relevant in size and are statistically significant. We document that the baseline BVAR exhibits an upward bias for GDP growth after the financial crisis, and our results provide evidence that survey forecasts can help mitigate the effects of structural breaks on the forecasting performance of a popular macroeconometric model.","PeriodicalId":101534,"journal":{"name":"Banque de France Research Paper Series","volume":"73 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2019-10-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"121036157","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
In most advanced economies, both real interest rates and productivity growth have decreased since the early 1990s. In this paper, we explore the mechanism whereby a circular relationship links these two quantities. While productivity is a key driver of potential output which affects the level of interest rates, the level of interest rates is a determinant of the expected return from investment projects, and thus of the productivity level required for investment. In our model, absent of a technology shock, this specific relationship can only converge to an equilibrium where growth and interest rates are both low. We test this using macroeconomic data on 17 OECD countries and simulate the effect of a temporary productivity shock.
{"title":"The Circular Relationship Between Productivity Growth and Real Interest Rates","authors":"A. Bergeaud, G. Cette, R. Lecat","doi":"10.2139/ssrn.3474897","DOIUrl":"https://doi.org/10.2139/ssrn.3474897","url":null,"abstract":"In most advanced economies, both real interest rates and productivity growth have decreased since the early 1990s. In this paper, we explore the mechanism whereby a circular relationship links these two quantities. While productivity is a key driver of potential output which affects the level of interest rates, the level of interest rates is a determinant of the expected return from investment projects, and thus of the productivity level required for investment. In our model, absent of a technology shock, this specific relationship can only converge to an equilibrium where growth and interest rates are both low. We test this using macroeconomic data on 17 OECD countries and simulate the effect of a temporary productivity shock.","PeriodicalId":101534,"journal":{"name":"Banque de France Research Paper Series","volume":"243 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2019-10-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"122342031","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Yield Curves reflect the borrowing and lending rates over a range of maturities within a particular market and currency. Yield curves capture the term structure of interest rates and provide observers with a means of comparing short- and long-term interest rates.
There are different types of yield curves, reflecting the different markets, institutions and instruments investors can choose to secure financing. Government Bond curves reflect the rate of return or yield required for governments to secure financing and likewise Swap Curves reflect the borrowing and lending rates available in Swap markets via interest rate swaps.
Current market yield curves are on the verge of inverting. The returns from long-term Government Bonds are lower than the equivalent short term bonds and borrowing money long-term is cheaper than short-term borrowing. This is unusual, typically long-term financing should cost more than short-term financing, not less.
In US markets inverted yield curves have been a reliable predictor of recessions. Each time the yield curve has inverted the US economy has entered a downturn within the subsequent 18 months. This has been the case with only one exception in the last 40 years. In this paper we review firstly what a yield curve is. Secondly we discuss the term structure of yields and interest rates and thirdly we outline the yield spread and explain why an inverted yield curve is a good recession predictor and indicator of heightened recessionary risk.
Finally we conclude with an estimate of the likelihood of a US recession in the next 12 months based on current market information.
{"title":"Are We Heading into a Recession? Yield Curve Inversion as a Recession Predictor","authors":"N. Burgess","doi":"10.2139/ssrn.3448739","DOIUrl":"https://doi.org/10.2139/ssrn.3448739","url":null,"abstract":"Yield Curves reflect the borrowing and lending rates over a range of maturities within a particular market and currency. Yield curves capture the term structure of interest rates and provide observers with a means of comparing short- and long-term interest rates.<br><br>There are different types of yield curves, reflecting the different markets, institutions and instruments investors can choose to secure financing. Government Bond curves reflect the rate of return or yield required for governments to secure financing and likewise Swap Curves reflect the borrowing and lending rates available in Swap markets via interest rate swaps.<br><br>Current market yield curves are on the verge of inverting. The returns from long-term Government Bonds are lower than the equivalent short term bonds and borrowing money long-term is cheaper than short-term borrowing. This is unusual, typically long-term financing should cost more than short-term financing, not less.<br><br>In US markets inverted yield curves have been a reliable predictor of recessions. Each time the yield curve has inverted the US economy has entered a downturn within the subsequent 18 months. This has been the case with only one exception in the last 40 years. In this paper we review firstly what a yield curve is. Secondly we discuss the term structure of yields and interest rates and thirdly we outline the yield spread and explain why an inverted yield curve is a good recession predictor and indicator of heightened recessionary risk.<br><br>Finally we conclude with an estimate of the likelihood of a US recession in the next 12 months based on current market information.","PeriodicalId":101534,"journal":{"name":"Banque de France Research Paper Series","volume":"56 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2019-09-05","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"132218511","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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