The Yield Curve and Growth Forecasts Assignment

Below are the instructions for the assignment for this week.

Case: The Yield Curve and Growth Forecasts

Based on the case study and other supporting external sources you will be assessing the predictive power of the yield curve.

You should answer the following questions:

• Estrella (NY Fed) is quite certain that the yield curve is a good predictor of future economic activity.  From the case, and external sources, please answer the following questions:
  • How successful is the yield curve at predicting recessions?
  • What type of securities and maturities are best to use?
  • What matters most – the level of the term spread, the change in the spread, or the level of short rates?
  • Discuss, in the context of a formal model, exactly why a yield curve inversion should lead to a recession.
• Dick Berner (Morgan Stanley) is a bit more skeptical about the predictive power of the yield curve.  Does he just not understand Estrella’s overwhelming evidence or does his skepticism stand on solid reasoning?
• How is the US yield curve currently sloped?  How does this affect your forecast of economic activity?
• What do you believe the yield curve will do over the next 12 months (steeped, flatten or stay the same)?  How does this affect your forecast of economic activity?

Your paper should meet the following requirements:

• Be well written
• Be 4 to 7 pages in length
• Should include a formal introduction and conclusion
• Be formatted according to the Northwood Writing Requirements
• Include a minimum of 3 credible references

Reference Page

All sources listed on the reference page must also be cited in the paper.