A Re-examination of the Predictability of Economic Activity Using the Yield Spread

James Hamilton () and Dong Heon Kim ()

No 7954, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper revisits the yield spread's usefulness for predicting future real GDP growth. We show that the contribution of the spread can be decomposed into the effect of expected future changes in short rates and the effect of the term premium. We find that both factors are relevant for predicting real GDP growth but the respective contributions differ. We investigate whether the cyclical behavior of interest rate volatility could account for either or both effects. We find that while volatility displays important correlations with both the term structure of interest rates and GDP, it does not appear to account for the yield spread's usefulness for predicting GDP growth.

JEL-codes: E32 E37 (search for similar items in EconPapers)
Date: 2000-10
Note: EFG
View list of references View citations in EconPapers

Downloads: (external link)
http://www.nber.org/papers/w7954.pdf (application/pdf)
Access to the full text is generally limited to series subscribers, however if the top level domain of the client browser is in a developing country or transition economy free access is provided. More information about subscriptions and free access is available at http://www.nber.org/wwphelp.html.

Related works:
Working Paper: A Re-examination of the Predictability of Economic Activity Using the Yield Spread (2000)
Journal Article: A Reexamination of the Predictability of Economic Activity Using the Yield Spread (2002)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:nbr:nberwo:7954

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w7954
The price is Paper copy available by mail.

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc
Address: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
Contact information at EDIRC.
Series data maintained by ().