The impact of term spread volatility on economic activity

Megaritis, Anastasios; Bakas, Dimitrios; Bermpei, Theodora; Triantafyllou, Athanasios

Abstract

We examine the impact of the volatility of the US Treasury yield curve slope (term spread volatility) on US economic activity within a VAR framework. Our findings show that a positive shock to term spread volatility leads to a persistent decline in US industrial production. Moreover, our econometric results are the first to demonstrate that term spread volatility absorbs the macroeconomic predictive information contained in the level of the term spread. Finally, the negative effect of term spread volatility remains robust in alternative VAR models, as well when including popular uncertainty proxies such as the VIX and the EPU indexes.

Citation

Megaritis, A., Bakas, D., Bermpei, T., & Triantafyllou, A. (2025). The impact of term spread volatility on economic activity. Economics letters, 247, Article 112190. https://doi.org/10.1016/j.econlet.2025.112190

• Journal Article Type: Article
• Acceptance Date: Jan 15, 2025
• Online Publication Date: Jan 16, 2025
• Publication Date: Feb 1, 2025
• Deposit Date: Jan 22, 2025
• Publicly Available Date: Jan 23, 2025
• Journal: Economics Letters
• Print ISSN: 0165-1765
• Publisher: Elsevier
• Peer Reviewed: Peer Reviewed
• Volume: 247
• Article Number: 112190
• DOI: https://doi.org/10.1016/j.econlet.2025.112190
• Keywords: Term spread; Volatility; Economic activity; Industrial production
• Public URL: https://hull-repository.worktribe.com/output/5007399