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

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