Staff Reports

Monetary Tightening Cycles and the Predictability of Economic Activity

October 2009Number 397
JEL classification: E44, E52, G17

Authors: Tobias Adrian and Arturo Estrella

Eleven of fourteen monetary tightening cycles since 1955 were followed by increases in unemployment; three were not. The term spread at the end of these cycles discriminates almost perfectly between subsequent outcomes, but levels of nominal or real interest rates, as well as other interest rate spreads, generally do not.

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