On the predictive power of the term structure during the 1930s

Abstract

This paper investigates the predictive power of the interest rates during the period 1929–1940 in the United States. Our empirical evidence finds no support for the one-to-one relationship between the term structure of short-term interest rates and inflation for forecasting horizons of six months less or greater than one year. The hypothesis is not rejected for a 3 to 12 month horizon or for the 12 to 24 month horizon with a structural break.