As noted in the post by Rashad Ahmad, foreign yield curve developments helped predict US growth. What did those spreads do? And, turning the question on its head, what does the US spread mean for those economies’ recession prospects?

Figure 1 depicts 10yr-3m sovereign spreads over time — so before the 2007 recession and during the run-up to  the 2020 pandemic.

Figure 1: 10yr-3mo Treasury spread (bold black), 10yr-3mo government bond – 3 month interbank spread for Canada (blue), for France (brown), for Germany (green), for Japan (red), for UK (dark gray). Source: Treasury via FRED, OECD Main Economic Indicators via FRED, and author’s calculations.

A cleaner measure for the foreign countries would’ve used sovereign yields for the short rate, to make comparable to the US spread (and to control for default risk), but I couldn’t get that easily.

While Chinn and Kucko (2015) examined cross-country evidence for own

Keep reading this article on Econbrowser Blog - James Hamilton & Menzie Chinn.

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