What Does the Yield Curve Tell us about GDP Growth?

Andrew Ang, Monika Piazzesi and Min Wei

No 10672, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: A lot, including a few things you may not expect. Previous studies find that the term spread forecasts GDP but these regressions are unconstrained and do not model regressor endogeneity. We build a dynamic model for GDP growth and yields that completely characterizes expectations of GDP. The model does not permit arbitrage. Contrary to previous findings, we predict that the short rate has more predictive power than any term spread. We confirm this finding by forecasting GDP out-of-sample. The model also recommends the use of lagged GDP and the longest maturity yield to measure slope. Greater efficiency enables the yield-curve model to produce superior out-of-sample GDP forecasts than unconstrained OLS regressions at all horizons.

JEL-codes: E4 E5 (search for similar items in EconPapers)
Date: 2004-08
New Economics Papers: this item is included in nep-mac
Note: EFG ME AP
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (28)

Published as Ang, Andrew, Monika Piazzesi, and Min Wei. "What Does The Yield Curve Tell Us About GDP Growth?" Journal of Econometrics 131(1-2): 359-403, March-April 2006
Published as Andrew Ang & Monika Piazzesi & Min Wei, 2003. "What does the yield curve tell us about GDP growth?," Proceedings, Federal Reserve Bank of San Francisco, issue Mar.

Downloads: (external link)
http://www.nber.org/papers/w10672.pdf (application/pdf)

Related works:
Journal Article: What does the yield curve tell us about GDP growth? (2006)
Journal Article: What does the yield curve tell us about GDP growth? (2003)
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: https://EconPapers.repec.org/RePEc:nbr:nberwo:10672

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w10672

Access Statistics for this paper

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