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The Australian yield curve as a leading indicator of consumption growth
journal contribution
posted on 2023-05-16, 11:20 authored by Felmingham, BS, Fisher, CGThe purpose of the reported research is to determine if Australia's real consumption growth is predicted by real and/or nominal yield spreads. To this end, a model of the relationship between consumption growth and interest rates is derived from neoclassical, utility maximizing premises. This theoretical foundation is applied to quarterly Australian data over the period 1983:4 to 1995:4. The time series on real consumption and yield spreads is stationary. Initial OLS estimates are subjected to the Newey West transformation and show that all 'real' spreads from one quarter to two years are significant, but at the short end these are of the wrong sign. Nominal spreads of one and two year length influence real consumption growth. The model provides accurate out-of-sample predictions. GMM estimation of the relationship between real spreads and real consumption are significant and of the correct sign at the longer end of the yield curve. Policy implications are indicated.
History
Publication title
Applied Financial EconomicsVolume
8Issue
6Pagination
627-635ISSN
0960-3107Department/School
TSBEPublisher
RoutledgePlace of publication
London, UKRepository Status
- Restricted