TY  - JOUR
AU  - Hamilton,James D.
AU  - Kim,Dong Heon
TI  - A Re-examination of the Predictability of Economic Activity Using the Yield Spread
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 7954
PY  - 2000
Y2  - October 2000
UR  - http://www.nber.org/papers/w7954
L1  - http://www.nber.org/papers/w7954.pdf
N1  - Author contact info:
James D. Hamilton
Department of Economics, 0508
University of California, San Diego
9500 Gilman Drive
La Jolla, CA 92093-0508
Tel: 858/534-5986
Fax: 858/534-7040
E-Mail: jhamilton@ucsd.edu
AB  - 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.
ER  -