FLAU - When Yield Curves Fail: Australian Experience
The belief that yield curve inversions forecast recessions fails most spectacularly in Australia in the post-1990 era. As shown above, the 3-month/10-year slope inverted multiple times in the post-1995 era. However, none of these inversions coincided with recessions in Australia (albeit financial turbulence did hit the country).
As a disclaimer, I am using "bank-accepted bills" as the 3-month rate, and so, the curve would flatten in response to credit spread widening. I am working with data from the Reserve Bank of Australia (courtesy of my new research platform), and so, I am forced to deal