NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

What Does the Yield Curve Tell us about GDP Growth?

Andrew Ang, Monika Piazzesi, Min Wei

NBER Working Paper No. 10672
Issued in August 2004
NBER Program(s):   EFG   ME   AP

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.

download in pdf format
   (636 K)

email paper

This paper is available as PDF (636 K) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w10672

Published:

  • 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 ,
  • 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.

Users who downloaded this paper also downloaded these:
Chinn and Kucko w16398 The Predictive Power of the Yield Curve across Countries and Time
Diebold, Rudebusch, and Aruoba w10616 The Macroeconomy and the Yield Curve: A Dynamic Latent Factor Approach
Mishkin w3550 Yield Curve
Diebold, Piazzesi, and Rudebusch w11089 Modeling Bond Yields in Finance and Macroeconomics
Prasad and Rajan w14051 A Pragmatic Approach to Capital Account Liberalization
 
Publications
Activities
Meetings
NBER Videos
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us