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2007, No. 16
Posted 2007-07-02

Is the Term Spread Still Speaking to Policymakers? Some International Evidence

by Massimo Guidolin and Allison K. Rodean

Long-term interest rates are usually higher than short-term interest rates; thus, the difference between the two rates, the term spread, is usually positive. Over the past 20 years, for most developed countries, a negative term spread tended to precede a recession approximately three quarters later. The United States, however, has recently observed a low (sometimes negative) term premium with no recession.