The Explanatory Power Of The Yield Curve In Predicting Recessions In South Africa

Mohapi, Tjhaka Alphons; Botha, Ilsé

doi:10.19030/iber.v12i6.7868

Cited by 7 publications

(7 citation statements)

References 23 publications

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“…Mohapi and Botha () examine the predictive ability of the South African term spread, and those of China, the USA and Germany for South Africa's recessions. Results based on a dynamic probit model and quarterly data from 1980:1 to 2012:2 show that the South African term spread accurately predicted all the South Africa's recessions since 1980; the 1996 and 2008 recessions were accurately predicted by the Chinese term spread.…”

Section: Literature Reviewmentioning

confidence: 99%

“…From the South African studies, it seems that the best forecasting horizon is shorter (two quarters) than that obtained by most studies especially in the USA and Europe where the yield curve gives its best results in a forecasting horizon of four to eight quarters. Also aside from Mohapi and Botha (), these studies focused on in‐sample forecasting.…”

Section: Literature Reviewmentioning

confidence: 99%

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Forecasting the Probability of Recessions in South Africa: the Role of Decomposed Term Spread and Economic Policy Uncertainty

Aye

Christou

Gil-Alana

et al. 2018

J of Intl Development

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This paper decomposes the term spread into the expectation and the term premium components using a fractional integration approach and subsequently uses same with the economic policy uncertainty index to forecast the probability of recession in South Africa. We use different specifications of the probit model and quarterly data from 1990:1 to 2012:1. Our out-of-sample results show that the model that incorporates the expectation component and economic policy uncertainty provides the best forecast of recession. All three recession periods in our sample were accurately dictated by the prediction models and the best forecast occurred at the four quarters ahead horizon. A robustness check with a longer sample from 1946q1 to 2017q4 but excluding the factors and economic policy uncertainty due to data limitation provided justification for decomposing the term spread as the model with the expected spread turned out to be the best. We draw the implications of these findings.

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Section: Literature Reviewmentioning

confidence: 99%

Section: Literature Reviewmentioning

confidence: 99%

Forecasting the Probability of Recessions in South Africa: the Role of Decomposed Term Spread and Economic Policy Uncertainty

Aye

Christou

Gil-Alana

et al. 2018

J of Intl Development

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“…Majority of the earlier studies concentrated on the US economy (See Estrella and Hardouvelis, 1991;Stock and Watson, 1989;Turnovsky, 1989) while others covered some major countries in Europe (Berk and Van Bergeijk, 2000;Estrella and Mishkin, 1997;Davis and Fagan, 1997). For instance, Estrella and Hardouvelis, (1991) showed that the yield curve could be employed to provide useful information on the probability of US economy to experience recession (Mohapi and Botha, 2013). Apart from the US, it has been shown that the yield curve could predict recession in other countries such as Germany, France, Italy and the United Kingdom (Estrella and Mishkin, 1995).…”

Section: Introductionmentioning

confidence: 99%

“…In the event of an unanticipated economic slowdown, for instance, financial institutions risk the loss of funds due to low investment flows. This further impacts the labour market negatively as such periods are characterized by employee lay-offs, low tax revenue to government and widened budget deficit (Mohapi and Botha, 2013).…”

Section: Introductionmentioning

confidence: 99%

Can the Yield Curve Predict Economic Growth Performance? Empirical Evidence from Nigeria

2021

RJFA

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The paper investigates the capability of the yield curve to predict future economic activity in Nigeria, especially before, during and after the 2016/2017 economic recession. Using quarterly data on the index of industrial production (as a proxy for economic growth) and yield spread, we generated regression results for various data samples including the era of the global financial crisis-GFC (2007)(2008)(2009); pre-economic recession in Nigeria (2010)(2011)(2012)(2013)(2014)(2015) and economic recession / slow recovery (2016)(2017)(2018)(2019).Though the model behaved differently before, during and after the 2016/2017 economic recession, general results indicated the substantial predictive power of the yield spread in providing a good forecast of the level of economic activity up to four quarters into the future. The paper therefore, strongly demonstrated the influence of yield spreads in predicting the future level of Nigeria's economic activity.

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“…Even international studies have been done concerning the yield curve as a leading indicator of real growth. Nel (1 6 , Moolman (2002, Khomo and Aziakpono (2007and Mohapi and Botha (2013 for South Africa that there is evidence to support the yield curve as a leading indicator. For Europe, both Bonser and Morley (1 7 and Moneta (2005 show this link.…”

Section: Introductionmentioning

confidence: 99%

The Inverted Yield Curve and the Components of GDP

Heath¹

2014

SBE

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When month Treasury rates are greater thanyear Treasury rates an inverted yield curve occurs. When this state is reached some argue that a recession is on the hori on, typically months to a year down the road. Here, I reframe the uestion of whether inverted yield curves predict recessions in the and ask what an inverted yield curve predicts. sing a Probit model I nd that when year Treasury bonds yield less than month Treasury bills, a recession, while probable, is not certain. Moreover, I nd that indeed the strength of this indicator has weakened over the last years. However, my ndings do not suggest that an inverted yield curve provides no information about the future. In fact, I nd that an inverted yield curve strongly predicts movements in the consumer durables and ed private investment series of P.

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The Explanatory Power Of The Yield Curve In Predicting Recessions In South Africa

Abstract: ABSTRACT

Cited by 7 publications

References 23 publications

Forecasting the Probability of Recessions in South Africa: the Role of Decomposed Term Spread and Economic Policy Uncertainty

Forecasting the Probability of Recessions in South Africa: the Role of Decomposed Term Spread and Economic Policy Uncertainty

Can the Yield Curve Predict Economic Growth Performance? Empirical Evidence from Nigeria

The Inverted Yield Curve and the Components of GDP

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