Date of Submission

Spring 2017

Academic Programs and Concentrations

Economics

Project Advisor 1

Olivier Giovannoni

Abstract/Artist's Statement

This paper re-examines the use of the yield curve as a forecasting tool for future real GDP growth in the United States. I identify a structural break in the term spread that is consistent with past literature findings. I examine the stability of the predictive power using multiple autoregressive models with three subsamples. My results indicate a strong predictive relationship between the term spread and real economic activity before 1982 third quarter, but that no statistically significant evidence has been found after 1982 third quarter. Using a disaggregate approach, I suggest that the yield curve still holds consistently strong predictive power in future nondurable goods consumption and non-residential investment growth. My analysis indicates how the yield curve may reflect the transmission channel: how monetary policy can impact consumption and investment, and hence real GDP.

Open Access Agreement

On-Campus only

Creative Commons License

Creative Commons License
This work is licensed under a Creative Commons Attribution-Noncommercial-No Derivative Works 4.0 License.

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