“Do External Yield Curves Predict US Economic Recession and GDP Growth?”

Yes! From Rashed Ahmed and Menzie Chinn, just published in the Journal of Money, Credit and Banking.

This paper was discussed earlier in this post; the updated version (August 2023) is here.

The foreign term spread (vs. US) is shown below. (Foreign spreads are trade-weighted US spreads using long- and short-term rates set by the Dallas Fed, but in recent years have been closer to the Ahmed-Chinn foreign term used in the paper.)

Figure 1: US 10-year term spread-3mo (blue), foreign long-term spread-3mo (red). The NBER has defined recession days as shaded in gray. Source: Treasury via FRED, Dallas Fed DGEI, NBER and author’s calculations.