The Predictive Power of the Term Spread on Inequality in the United Kingdom: An Empirical Analysis

Mehmet Balcilar, Edmond Berisha*, Oguzhan Cepni, Rangan Gupta

*Corresponding author for this work

Research output: Contribution to journalJournal articleResearchpeer-review


A common tool in forecasting literature used in predicting future economic conditions is the term spread, which tends to contract near peaks and rise near troughs. Building on this known relationship, this paper explores the predictive power of the yield spread on the distribution of income in the United Kingdom (UK). The results reveal that income inequality responds negatively to increases in the yield spread over the medium-term. Specifically, we show that the term spread can help to predict UK's income inequality growth both in- and out-of-sample. Our empirical findings show that it is the expected component of the term spread that has predictive power for lower income inequality in the UK.
Original languageEnglish
JournalInternational Journal of Finance and Economics
Issue number2
Pages (from-to)1979-1988
Number of pages10
Publication statusPublished - Apr 2022
Externally publishedYes

Bibliographical note

Published online: 14 September 2020.


  • Inequality
  • Predictions
  • Term premium
  • Yield spread

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