The mortgage spread as a predictor of real-time economic activity

Abstract

We analyse the predictive content of the mortgage spread for US economic activity. We find that the spread contains predictive power for real GDP and industrial production. Furthermore, it outperforms the term spread and Gilchrist–Zakrajšek credit spread in a real-time forecasting exercise. However, the predictive ability of the mortgage spread varies over time.

Keywords:

• Mortgage spread
• forecasting
• real-time data

JEL Classification:

• C53
• E37
• E44

Acknowledgement

I thank Karl Walentin and Jari Vainiomäki for helpful comments.

Notes

¹ Following Hall (2011), the mortgage spread is defined as the difference between 30-year mortgage rate and 10-year Treasury bond rate.

² We use values recorded in the real-time data set two quarters after the target quarter as final values (see Faust et al. 2013).

Additional information

Funding

Financial support from the FDPE is gratefully acknowledged.