The results show that the slope indicator performance has deteriorated in recent years although it seems to work better than other leading indicators for some European countries. Today we are mainly interested in examining the important role the yield curve has for the conduct of monetary policy. The yield curve is important mainly for two reasons.
First, it is an indicator of what the market is thinking about the expected path of future monetary policy. This follows because long-term rates under certain conditions reflect expectations of the future path of short-term rates. Of course, besides future rate expectations, longer maturity yields typically contain risk premia. The quantification of these premia is not without challenges even in normal times.