Range Margins and Recessions, Countrywide Evidence – A Very Incomplete Review

Dr. Rosser asks what is the evidence for the widespread use of the term that predicts recessions, with particular reference to Japan. Here is my partial answer:

Chinn and Kucko (2015) examine data over the period 1970-2013, and obtain the following results:

source: Chen and Coco (2015).

The economic Article on this subject here.

Note that this specification includes a three-month yield plus a spread of 10yr-3mo. The results are much the same as for the simpler spec using spread only, except that the spread is not statistically significant for Japan.

There are certainly many other studies on how the term predicts prevalence for groups of countries; Haubrich (2020) reviews some of these studies. However, recent studies usually rely on plaque analysis. See for example Gebka and Wohar (2018) or Borio, Drehman and Xia (2018), or Hasse and Laujaunie (2020), so we don’t know what specifications work well for a particular country. (Of course, Mehl (2009) is the most comprehensive study of emerging/developing countries.)

My cautionary tale for China, here.

Fed studies on the term went viral in June of this year, Kelly (2022), Hornstein (2022), and Bauer and Mertens (2022).

Ahmed and Shen (2022) discuss the prevalence of the 10-year-3-month term, reinforced by the prevalence of the foreign term, as a predictor.

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