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Vol 41 No 2 (2026): May

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Submitted
Jun 10, 2024
Accepted
Dec 19, 2025
Published
May 26, 2026
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Yield Spread as a Predictor of Recession in Asia-Pacific: The Role of Monetary Policy Objectives

https://doi.org/10.22146/jieb.v41i2.13892
Axel Azriel Alfarizqy
axelazrielalfa@gmail.com
Department of Economics, Faculty of Economics and Business, Universitas Diponegoro, Semarang, 50275, Indonesia
FX. Sugiyanto
Department of Economics, Faculty of Economics and Business, Universitas Diponegoro, Semarang, 50275, Indonesia

Corresponding Author(s) : Axel Azriel Alfarizqy

axelazrielalfa@gmail.com

Journal of Indonesian Economy and Business, Vol 41 No 2 (2026): May

Abstract

Introduction/Main Objectives: This research examines the predictive power and stability of yield spread in relation to recession for five Asia-Pacific Countries, with monetary policy as the control variable. Background Problems: Yield spread has been extensively studied in industrial countries, but its impact on the real economy in developing regions remains underexplored. Moreover, the informational content underlying the yield spread is still unclear. Novelty: This research incorporates the role of monetary policy objectives in influencing the informational content and stability of the predictive power of yield spread. Research Methods: The research utilizes a fixed effects panel probit approach to conduct in-sample forecasting using monthly secondary data from October 2004 to May 2022. To test parameter stability, Likelihood Ratio Tests were also used. Findings/Results: The yield spread outperforms money supply and stock index for predicting recessions, with an optimal lag of three months. Monetary policy plays a crucial role as every inversion of the yield curve is associated with an interest rate hike, but the model performs better when central bank have prioritized output stabilization and the relationship between interest rate and output is not disturbed. Conclusion: Yield spread is a reliable predictor of recession in Asia-Pacific, but its predictive power depends on the interest rate–output relationship. Therefore, central banks shouldn't use the yield spread during zero lower bound or supply shock conditions.

Keywords

yield spread recession leading indicator panel probit monetary policy
Alfarizqy, A. A., & Sugiyanto, F. (2026). Yield Spread as a Predictor of Recession in Asia-Pacific: The Role of Monetary Policy Objectives. ournal of ndonesian conomy and usiness, 41(2), 230 -. https://doi.org/10.22146/jieb.v41i2.13892
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Author Biographies

Axel Azriel Alfarizqy, Department of Economics, Faculty of Economics and Business, Universitas Diponegoro, Semarang, 50275, Indonesia

Axel Azriel Alfarizqy is a research associate at Indo Premier Sekuritas, where he has been working since 2024. He specializes in macroeconomic analysis and delivers research reports to institutional clients, including insurance companies, pension funds, and government entities. He earned his Bachelor’s degree in Economics from the Faculty of Economics and Business, Universitas Diponegoro, Indonesia, graduating as Valedictorian in 2024. His research interests lie in the areas of monetary policy, financial markets, and business cycles. He has contributed to various macroeconomic and financial research projects within Indonesia’s capital market. He also previously participated in the Student Creativity Program (PKM) in 2021, where his research project successfully secured national funding from the Ministry of Education.

FX. Sugiyanto, Department of Economics, Faculty of Economics and Business, Universitas Diponegoro, Semarang, 50275, Indonesia

Fransiscus Xaverius Sugiyanto is a Professor of Economics at the Faculty of Economics and Business, Universitas Diponegoro, Indonesia, where he has been a faculty member since 2002. He earned his Bachelor’s degree in Economics from Universitas Gadjah Mada, Indonesia, followed by a Master’s degree in Economics from Universitas Gadjah Mada and a Ph.D. in Economics from Universitas Airlangga. His research interests include macroeconomics, monetary economics, and development economics. His professional experience includes previously serving as an Economic Advisor and Commissioner at Bank Jateng and a member of the Regional Development Advisory Council (DP2K) of Semarang City. He is also active as an economic observer and writer for various national media outlets.

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