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Does the term structure forecast

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Author Info
Andrea Berardi (Universita di Verona)
Walter Torous (Anderson School of Management)
Abstract

Relying on a simple general equilibrium model of the term structure, both nominal yields and real consumption growth rates can be shown to be a±ne in the unobservable state variables. We can then express real consumption growth rates in terms of nominal yields rather than the unobservable state variables with the coe±cients of the resultant forecasting relation being endogenously determined by the term structure model. In this sense, we use the entire term structure to forecast real consumption growth rates and provide empirical evidence consistent with the model more accurately predicting real consumption growth rates than a regression model based on the term spread.

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Paper provided by Anderson Graduate School of Management, UCLA in its series University of California at Los Angeles, Anderson Graduate School of Management with number 1044.

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Date of creation: 01 Apr 2002
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Handle: RePEc:cdl:anderf:1044

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