Unit roots,interest rate spreads,and inflation forecasts

Recent research suggests that long-term interest rate spreads provide information that can be useful in forecasting inflation, but that the spread between the three-month and six-month Treasury bill rates appears to have little forecasting ability. This paper uses the concepts of unit roots and cointegration to examine the failure of the short-term T-bill spread to forecast inflation. The results suggest that the interest rate spread has little forecasting value because inflation and the interest rate spread exhibit distinctly different time-series properties.