TY - BOOK ID - 84541856 TI - The Yield Curve and Real Activity PY - 1993 SN - 1462367232 1455219177 1281083801 9786613774156 145526346X PB - Washington, D.C. : International Monetary Fund, DB - UniCat KW - Banks and Banking KW - Macroeconomics KW - Business Fluctuations KW - Cycles KW - Price Level KW - Inflation KW - Deflation KW - Interest Rates: Determination, Term Structure, and Effects KW - Macroeconomics: Production KW - Finance KW - Asset prices KW - Yield curve KW - Consumer price indexes KW - Short term interest rates KW - Production growth KW - Prices KW - Financial services KW - Production KW - Interest rates KW - Price indexes KW - Economic theory KW - United Kingdom UR - https://www.unicat.be/uniCat?func=search&query=sysid:84541856 AB - The financial press frequently suggest that the shape of yield curve reflects information about the prospects of the economy. This paper attempts to formalize the link between the yield curve and the real economic activity. A closed-form formula for the term structure of interest rates is derived. It is shown that the term structure embodies the market’s expectation about changes in the macroeconomic fundamental--the growth in real aggregate output of the economy. The paper then documents the use of bond market data for predicting GDP growth in the G-7 industrial countries. The results suggest that a simple measure of the slope of the yield curve, namely the yield spread, serves as a good predictor of future economic growth. The out-of-sample forecasting performance of the yield spread compares favorably with that of the alternative stock price-based model and a univariate time series (ARMA) model. One practical implication is that it may be useful to add some measure of the term structure to the list of. ER -