MONEY, INTEREST-RATE SPREADS, AND ECONOMIC-ACTIVITY

Numerous empirical studies for industrial countries have shown that th e term structure of interest rates is a good indicator for future outp ut growth. This paper analyzes whether the interest rate spread contai ns any additional predictive power if the model includes the money sto ck. A multivariate error-correction framework is applied to three Euro pean economies - France, Germany, and Italy. Granger causality tests a re performed for various monetary aggregates and the term structure. T he evidence concerning the marginal information content is mixed: For France and Italy, the term structure does not improve the results of t he basic model whereas it is significant for Germany.