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
This work is licensed under a Creative Commons Attribution-Noncommercial-No Derivative Works 4.0 License.
Recommended Citation
Xu, Nanshan, "The Predictive Power of the Yield Curve in the Low Interest Rate Environment" (2017). Senior Projects Spring 2017. 61.
https://digitalcommons.bard.edu/senproj_s2017/61
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