How does the yield curve compare with other indicators?
A. In general, the yield curve tends to perform quite well in comparisons with other leading indicators, including the traditional leading indexes and their components, and other variables with potential predictive power. Indicators such as stock prices and interest rates may have similar performance to the yield curve at some horizons, but none seem to dominate the yield curve as a predictor. For instance, Dueker (1997) and Dotsey (1998) compare the yield curve with a few other variables as a leading indicator of recessions, and find generally supportive statistical evidence. Estrella and Mishkin (1998) compare the term structure as a predictor of recessions with a large number of alternative indicators, and find that it is among the best in tests of statistical significance, particularly at horizons of about one year. Stock and Watson (2003) examine a large number of competing indicators in forecasts of output growth and find that all of them fall short of ideal properties, but that
