Abstract

http://ssrn.com/abstract=579208
 
 

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What Does the Yield Curve Tell Us About GDP Growth?


Andrew Ang


Columbia Business School - Finance and Economics; National Bureau of Economic Research (NBER)

Monika Piazzesi


University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER)

Min Wei


Board of Governors of the Federal Reserve - Division of Monetary Affairs

August 2004

NBER Working Paper No. w10672

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.

Number of Pages in PDF File: 59

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Date posted: September 2, 2004  

Suggested Citation

Ang, Andrew and Piazzesi, Monika and Wei, Min, What Does the Yield Curve Tell Us About GDP Growth? (August 2004). NBER Working Paper No. w10672. Available at SSRN: http://ssrn.com/abstract=579208

Contact Information

Andrew Ang (Contact Author)
Columbia Business School - Finance and Economics ( email )
3022 Broadway
New York, NY 10027
United States

National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Monika Piazzesi
University of Chicago - Booth School of Business ( email )
5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-834-3199 (Phone)
773-702-0458 (Fax)
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Min Wei
Board of Governors of the Federal Reserve - Division of Monetary Affairs ( email )
20th and C Streets, NW
Washington, DC 20551
United States
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