The Yield Spread and Real Economic Activity

The Impact of Globalisation

K. M. Hawtrey*

*Corresponding author for this work

Research output: Contribution to journalArticle

Abstract

One of the enduring linkages between financial markets and the real economy is that the shape of the interest rate curve is seen as a good predictor of future output growth. However, little is known about the effect of globalisation on this relationship. This paper examines whether, in the wake of the intemationalisation of the Australian economy during the past decade and a half, there is today an identifiable relationship between the foreign yield spread and Australian GDP growth. Using the US interest rate spread as a proxy for the world yield curve, a link is found to exist with Australian GDP growth. There is evidence the link has strengthened as the economy has seen greater exposure to globalisation.

Original languageEnglish
Pages (from-to)203-219
Number of pages17
JournalEconomic Analysis and Policy
Volume32
Issue number2
DOIs
Publication statusPublished - 2002

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